HHLL Strategy - the secret you always knew about

Hello, fellow Forex traders!

Today, we will get acquainted with a strategy called HHLL. It is possible that the strategy is known to you with a different name, since, you might say, it refers to classical ones. The strategy is based on Price Action, that is, on the movement of prices and there is no need to apply the indicators. Nevertheless, the indicators can be used for greater visibility and simplification of the search for the setups.

This strategy will remind you of the teachings of Sam Seiden, one of the supporters of Price Action. What is important, in my opinion, the TS can be a base for the development of your own ideas. Ultimately, by tweaking something, adding something, you can come to your own vision, your own strategy, which will personally answer your vision of the market, and it is your approach to trade.

One of my colleagues, a Websmith trader, prompted me to this strategy, and, as a matter of fact, created his own modification on it and successfully trades using it, managing the PAMM account. The system is based on the pattern known as Over and Under.

Strategy characteristics

Platform: any
Currency pairs: any
Timeframe: any
Trading time: round the clock
Recommended brokers: Roboforex, AMarkets

Idea of the Strategy

As I like to repeat, in any strategy there must be some basis or premise, on the basis of which all this should work. Creating your own strategy, you also need this premise, for example, any inefficiency of the market, or its regularity, and on this basis of it, you can build points for entry-exit and correction of positions.

First, let’s recall the classic definition of the trend. An uptrend is a series of consistently rising highs and lows. That is, each high (H) point is higher than the previous one and each low (L) is higher than the previous one.

With a downtrend, the opposite is true. In a downtrend, the highs and the lows consistently get lower.

Perhaps, you already know which figure we will look for on the chart. That is, what the very first sign will allow us to understand when it is worth paying attention to the market and waiting for a possible entry point.

Suppose, we have an uptrend. We have an H point, then a correction at point L. After that, there is a higher maximum, designated in this strategy as HH (Higher High). Further, as soon as we see the breakdown of the trend structure, that is, the lower minimum of LL (Lower Low), we are preparing to look for a point to sell.

Similarly, with a downtrend. First, we determine the minimum of L, then the maximum on H correction, the lower minimum of LL and, finally, the higher maximum of HH. This means that the structure of the downtrend is broken. We pay attention to this situation and wait for a possible entry point to buy.

Entry rules

To begin with, consider entering with a sale. We will enter on rollback to point H. This structure works because there are large players on the market, and large players need liquidity. That is, to make a major sale, they need a large number of purchase orders in order to sell all the currency. The zone between H and HH is a zone of high liquidity. Accordingly, there are many people who want to buy, as they hope to continue the uptrend.

You can enter with a pending order, in which case, the sequence is as follows:

• We expect the formation of the LL point (breakdown of the trend);
• Set Sell Limit to level H.

As in the case of sales, in the reverse figure, we have a zone of increased liquidity between the points L and LL. There are a lot of people willing to sell, those who hope for the continuation of the downward trend. Someone bought too early, someone panics and closes positions, and many in this zone may have a stop-loss. Accordingly, for a large player, it is a good opportunity to buy, and we enter the market with him:

• Expect the formation of the HH point;
• Set Buy Limit at level L.

Stop-loss and take-profit

Set the stop loss at the extreme point of the zone of increased liquidity. HH - in case of sales, LL - in case of purchases. Reminding you, Stop loss is set in the points where you can accurately say that you were wrong.

We have two goals. For sales, the first goal is at level L, the second at LL. For purchases, on the contrary, we take the first profit with H, the second with HH. In the event that the distance between goal 1 and 2 is too small, it makes sense to take only the first goal. In other cases, for setting the take-profit, you can take the average value between two points. If desired, you can apply partial closing of the position in N points.

Trading recommendations

It is strongly recommended that the take-profit was 2 times bigger then stop-loss. Unfortunately, in practice, this happens infrequently. Try to keep the ratio at least 1 to 1. If the take-profit is less than the stop-loss, it is better not to enter the transaction.

It is worth noting that it will be difficult at first for the beginner to determine all the points of high-low, so I recommend putting the ZigZag indicator on the chart (there is a default in any terminal). You cannot change the default settings. The only thing, the indicator does not always correctly determine the extremes. But, in general, ZigZag greatly simplifies the task of finding high-low points.

At first, purely for yourself, you can mark the high-low points on the chart with text. Alternatively, you can print the chart, and mark the points with a marker. Do not hesitate to do so, it will subsequently help you to better understand the current market situation.

Examples

The entry point can be quite far away from the established setup. In this case, we had a certain uptrend. First, mark the first high, then low and higher high - HH. Then, following the prompts of ZigZag, we find a lower minimum of LL, which is located quite a bit far away. The entry point for sale will be located at the level of H.

At this level, we are looking for sales (Sell). At first glance, the distance is great. But, since our structure is preserved, why not? Accordingly, the price subsequently bounces off from the marked level. Put the stop-loss a little above the extreme point - HH. In this case, the take-to-stop ratio is very good.

As you probably already guessed, this strategy combines the theory of support/resistance levels. Candles with large shadows in the clearing zone show how large players were gaining positions, destroying purchases. Accordingly, the price went down, reaching our take-profit – low point. The next goal is far away, so I would not risk leaving any major part of the position in the hope that the price will still reach it.

Let’s consider one more non-standard example. Here we see the formation of low, correction of H and a lower low - LL. Then the price draws a zigzag without going beyond the boundaries of the points marked by us. For clarity, do not forget to draw levels. Zigzags inside the levels can be ignored.

When there was a higher high - HH, that is, the structure of the downtrend broke, we start looking for purchases. In this case, we need to roll back to point L. After the formation of the HH point, set Buy Limit at L and wait. In this case, the price didn’t reach our order and went up.

Now, let’s take a look at the smaller timeframe - M15. The timeframe is quite low, which means there will be more price noise, and the level of professionalism for trade should be higher. Despite this, newcomers for some reason persistently try to trade on small TFs.

When working with chaos, it is worth remembering the prerequisites of our strategy, and specifically, that we are looking for a breakdown of the trend. That is, if there was no obvious trend, then there is nothing to break. Accordingly, before the setup, it is necessary to determine a clear and explicit trend.

Here, as a prerequisite, we have an obvious downward trend. First, the price forms low, then the high, the lower low and the higher high – breach of the downtrend. After that, we are preparing for a possible entry to buy at the low (L) level. In this example, both targets - H and HH worked out. But, again, it is quite difficult to look for setups on the M15 because of the large price noise.

Let’s now take a look at a more interesting example on the daily chart. Moreover, an example, where our stop loss has worked out. In fact, an insulting situation - the stop-loss worked out, after which the price turned around and reached the first goal, unfortunately, without us. And, such cases have a place to be.

Conclusion

Try not to search for not existing setups in the price chaos, calculating single points. Trade only the right setups, with a good profit-to-risk ratio. Also, the TS can be used in combination with other strategies. In general, this is a good springboard for the development of you as a trader.

Regards, Michael

ForexTraderPortal.com