Puppet Shadow: Almost a Holy Grail for Intraday Scalping

Hello, Forex trader friends! As we know, the market's goal is to take your stops. Retracements inevitably follow the trend. It has always been this way and always will be, otherwise this game would be too simple.

Today we will talk about a strategy called the Puppet Shadow. The strategy is aimed at profiting from the natural market movements that occur after a breakout of round levels. The system is simple and undemanding, so it can be traded with equal success on almost any trading platform (there is an auxiliary expert advisor, but everything can also be done manually).

We will enter the market precisely when harvest time comes, the time to collect the stops of losers. When the Puppet Shadow hangs over the market...

First, let us try to understand what round levels are. Essentially, round (or psychological) levels are horizontal price marks with two zeros at the end, for example: 1.3300, 1.3400, 1.3500 and so on. The same goes for yen pairs: 110.00, 111.00, 112.00.

The strategy is based on the idea that after a breakout of a round level and, at the same time, the activation of a large number of orders, a retracement necessarily forms. As a rule, the retracement occurs at a distance of 30 points from the breakout of the round level.

Rules for selling:

If the price breaks the level from bottom to top, then at a distance of 30 points we must place a pending order Sell Limit.

Empirically, it was found that the most suitable take-profit level (in terms of profit) is 10 points, and for a higher percentage of profitable trades, 7 points. The optimal stop-loss size is 21 points.

Despite the fact that the stop is larger than the profit, in this case the loss is more than compensated for by a much larger number of profitable trades. The reason for setting a large stop is simple. The fact is that there is too much trading noise intraday, so as in the case of many other intraday strategies, such a stop is simply necessary here.

Rules for buying:

The same applies to a breakout of the level downward. At a distance of 30 points from the level, we place a pending order Buy Limit. We also set a take-profit of 7 (or 10) points and a stop-loss of 21 points. Since we initially place two orders, one above the level and the other below, when one of the orders is triggered, we delete the second one.

There is an exception for USDCAD: the pair has a restless nature, so the rules are somewhat different for it. The rules for placing orders are similar, the only difference is that pending orders are placed at a distance of 50 points rather than 30. The stop and take sizes are the same.

It is important to take the time factor into account. We begin watching for breakouts at 8:00 Greenwich time, or 11 a.m. Moscow time. As soon as a breakout occurs (or before the breakout occurs), we place pending orders on both sides of the level. We stop trading at 20:00 Greenwich time, or 11 p.m. Moscow time. When this time arrives, we remove all untriggered pending orders. If there are open positions at that time, we wait for them to close by stop or take. That is, we remove pending orders and do not touch open positions.

For 3 hours we have a break, and at 23:00 Greenwich time (2 a.m. Moscow time) the Asian session begins within this strategy. This means that the first trading segment falls on the period from 8 a.m. to 8 p.m. Greenwich time. The second segment begins at 11 p.m. Greenwich time and ends at 8 a.m.

At the junction of the two periods, we remove all orders that were not triggered overnight and begin trading with a clean slate. If there are open positions at that time, we let them close by stop or take. From 20:00 to 23:00 Greenwich time we do not trade.

The current Greenwich Mean Time (GMT) can be viewed here.

Since trading is conducted around the clock (except for a 3-hour break), it is convenient to use an expert advisor to place orders. You simply set the levels at which to place orders and specify the size of the take-profit and stop-loss. Also, at a specified time the expert advisor can delete all untriggered pending orders.

The expert advisor is installed according to the standard instructions, with no nuances.

First, open a chart with a timeframe on which it will be convenient for you to watch the level breakout. In my opinion, it is most convenient to do this on the M5 chart. To launch the expert advisor, simply drag it onto the chart.

First, we specify the Lot Size value, the order volume. In the expert advisor, you can set two levels (Price 1 and Price 2). Since we do not know exactly where the price will go, we set one level above and the other below the current price. Next, we set the distance (Distance to entry). As we remember, the distance for the Canadian dollar pair is 50 points, and for the other pairs it is 30. Stop-loss and take-profit are 21 and 7 (or 10) points, respectively. You can also program the deletion of orders at a certain time. To do this, set the Cancel Pendings at ? GMT parameter to true, and in the Time to Cancel field specify the time to delete the orders (for example, 8 a.m. GMT).

Two lines will appear on the chart. As soon as the price crosses one of them, the expert advisor will place limit orders with the specified distance, stop, and profit parameters.

The strategy works wonderfully in a flat market. It is rare for a trade to be stopped out, which you can observe on the GBPUSD five-minute chart below.

During a trend, there will be fewer trades. In such periods, it is better not to use a large profit target, as this can greatly reduce the percentage of profitable trades.

Tip: if the price fell just a little short of the take and then reversed, it is better to exit the trade.

Keep an eye on the profit-taking and loss-cutting levels. A short take gives more profitable trades, but a 10-point take increases the size of total return. In any case, the stop-loss should be set larger than the profit level so that intraday trading noise does not knock out short stops. Nevertheless, even such a stop-to-take ratio provides substantial profit. The strategy itself is quite simple, and using the auxiliary expert advisor requires minimal action from you. The percentage of profitable trades can reach 85%

Discussion on the forum

Sincerely, Pavel Vlasov
TradeLikeaPro.ru