Stairstep Breakout System — when the Flat is your friend

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Hello ladies and gentlemen, fellow forex traders! I am glad to welcome you to the site and today we will talk about the system called The Stairstep Breakout System (SSBO).

Having thousands of fans around the world, the strategy can be called classic without exaggeration. Unlike other systems, when we wait for something to happen in the market, here we are waiting for a calmness, and only then we proceed to actions. Another interesting point is that over the years of the strategy’s existence, no one complained about its inefficiency.

TS Characteristics

  • Platform: MetaTrader 4
  • Currency pairs: any
  • Timeframe: M15-D1
  • Trading time: 24 hours
  • Recommended Brokers: Roboforex, XM

TS Description

First of all, I would like to express my gratitude to the author of the strategy, the user with the forexhard nickname from the ForexFactory forum. The strategy has long been actively discussed in the original branch. What is noteworthy, the rules of the strategy have not changed even after many years. After all, it often happens that the original rules vary greatly, become more complicated, as a result of which the very basis of the approach is lost. Here, the rules did not change, the only thing was that an assisting indicator was developed to simplify the routine processes on the part of the trader.

So, we know that there are trends in the market. Most of the trading systems are devoted to catching them. And also there are periods of calmness when nothing happens in the market. All of us are familiar with them - these are one of the most dangerous periods for a trader since it is where the greatest number of false signals is formed. In this strategy, on the contrary, we are looking for such periods when nothing happens on the market, that is, a consolidation zone is formed.

The reason for consolidation zone appearance is similar to the reasons for the appearance of an Inside Bar. In general, the principle of the Stairstep Breakout System strategy is very similar to this Price Action pattern, as the author of the strategy himself says. The calmness is formed during a period of a temporary agreement in price between buyers and sellers - an armistice between bulls and bears. But, since the war never stops, sooner or later one of the parties will win, which will result in some movement. During such an “armistice” we can enter the market and follow the established trend, be against it, or wait for one of the parties to win.

As you probably already guessed, the first thing we do is wait for the formation of those very consolidation zones. It is worth considering the shape of the formed zone. The narrower and longer the consolidation zone, the stronger the exit from it, which, in fact, interests us. For example, for the M15 timeframe, the length should be 20 bars or more, for H1 even 10 can be enough. The normal height for consolidation is approximately two medium candles.

If you trade via MT4, you can independently mark consolidation zones on the chart through the Insert - Shapes - Rectangle. At first, if you are not completely sure whether there is a consolidation zone or not, it is better to skip the entrance and wait for a more correct formation. In the attached files there is a pdf document from the strategy author (consolidations.pdf), where you will find examples of consolidations under different market conditions.

For those already familiar with graphical analysis, the consolidation zones will often resemble familiar patterns, such as a narrowing flag, triangle, and so on. But in this strategy, we do not consider figures. In any case, the way to identify consolidation zones can be very subjective, which is why it is better to use an assisting indicator for this case.

Dynamic Breakout Box Indicator

Set the indicator in an absolutely standard way. To start, simply drag the indicator from the navigator window to the chart, and then the settings will open. For each pair and timeframe, settings must be selected individually.

  • BoxLength – consolidation zone length;
  • BoxTimeFrame – timeframe for calculation (by default, it‘s 15 minutes);
  • BoxRange – zone height;
  • AutoBoxRange – this setting we will use only for the initial launch to find the correct consolidation height;
  • AutoBoxRangeDailyADRperiod –ADR period for average candle size determination. I.e. N last days are taken and average is calculated
  • AutoBoxRangeDailyADRfactor –ADR multiplier for automatic consolidation height determination. I.e. what percent of daily volatility we take to the box. The bigger the timeframe the larger the number.
  • BoxBufferPips – distance from the consolidation boundary, which will not be considered a breakdown;
  • DaysBack – for what period to make a calculation;
  • MinBarsClosedOutsideBO – minimal number of bars closed beyond the boundary before the deal entrance (by default, 2 candles);
  • ShowDisplayPanel – information panel display on a chart;
  • ShowTPLevels – take profit levels display;
  • ShowTPLevelsOnLastBoxOnly – take profit levels display only for the last signal;
  • TP1… TP9– take profit levels (by default, fibo levels);
  • SignalMail – email notifications;
  • SignalAlert – terminal notifications.

The indicator automatically determines the consolidation zones corresponding to the specified parameters. Also, drawing the consolidation zone continues into the future to find out how the price will react to it. On the chart, we see that the price really remembers these levels and periodically tests them.

The version of the Final Edition indicator in addition to consolidation zones also builds statistics on possible entries/exits. For example, here we see that 31 long and 30 short trades were made in the last 50 days (the period is specified in the parameters), and in general, 402 points were earned.

Next, let’s try to determine the optimal size of our “box”. Volatility is different everywhere and for each pair/timeframe, you need to select the appropriate value. So, first set AutoBoxRange to true (Do not forget to specify the length of the box in settings). Now we look, what number we most often see under the “box” and determine the average. For EURUSD at the moment it is 15 points. Now, go to the indicator parameters, turn off the AutoBoxRange and change the BoxRange to 15 points. You can save the template with the optimal parameters for a particular instrument and time period.

The horizontal lines show the same buffer zones that the price can freely go beyond. Again, if the buffer size of 5 points is enough for the M15, then for larger TFs the size will be quite different.

In addition to entering on the breakouts, the indicator shows the entries on consolidation levels retest. That is when after entry, the price returns to test the level and again breaks through the buffer zone.

Entry rules

As you already guessed, we enter the breakdown of the consolidation zone + buffer. That is, we don‘t consider the breaking through of the “box”, but of the buffer zone boundaries. In this case, we wait for the closure of two candles outside the buffer to confirm. We enter either pending orders or market orders if you constantly follow the chart. We enter one consolidation zone not more than twice, and ideally one. If the trade did not work out- wait for the next consolidation.

Stop Loss and Take Profit

Take profit is always greater than the stop loss (at least by 10%) - we try to stick to this. Stop loss can be placed on the opposite side of the consolidation zone. Take profit, respectively, is also equal to the size of the box + a few more points.

Also, you can use a fixed size of the stop and profit. Orange inscriptions on the chart are the number of items that the price passed from the last breakdown. When you set fixed levels, you can focus on these values. Also, as support points, you can use support/resistance levels. And, finally, you can turn on displaying take profit levels in the indicator (ShowTPLevels).

Additional Tricks

  • You can use some tricks to recoup the loss-making position. Alternatively, with the next signal, we can set the take profit equal to the stop loss of the losing order, thus paying off the loss. Also, we can enter the double lot, intending to repay the loss and make a profit. And we can also divide take profit and stop loss by two, covering the loss by a double lot at the position.

If the second signal is also unprofitable, wait for the next signal on the next consolidation and again enter with a double lot. Naturally, such a strategy is dangerous in itself, so repeat this scheme no more than 3-4 times. The bottom line is that consolidation will sooner or later lead to a strong upsurge and our task is to catch it.

  • Instead of stop loss, you can apply the hedging. For example, if we entered the purchase, then instead of stop loss set a Sell Stop pending order. When the price unfolds and the order is activated, we have two differently directed positions. After that, if we see two candles on the other side of the buffer zone, we remove the extra order. It turns out that while the price has not decided on the direction, we are sitting in the market and our losses do not grow and remain at the same level.
  • Money management is standard here - 2-3% per deal. If you apply martingale or locking - reduce to 0.5%, or even less.

Conclusion

In general, this is a universal system for any time frame and currency pair, which is also easily verified on the history. The only difficulty is the initial adjustment of the indicator since it needs to be adjusted separately for each pair and timeframe. On the other hand, the number of settings, in particular, the ability to indicate the number of candles behind the buffer, make the indicator a much more practical and flexible assistant in trade.

Download Stairstep Breakout System files

Take care, Michael

ForexTraderPortal.com

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