All news"King Of The Hill" Strategy
Hello friend!
Today we are going to talk about a fascinating strategy, which is called "King of the hill". Such a name is probably very catchy. Here we will look for descending trends and then open trades by making the prices to drop from the very top to the bottom.
So, why we need descending trends? Generally, a strategy based on falling trends is typically very unusual because searches for rising trends and price ascending rules are described in more detail than descending trends. However, for this strategy, we will use an old rule of falling price. The rule follows as: a price usually drops more rapidly than it rises because even the people who are sure about the further growth may panic and start selling. On the other hand, a price increases slower and gradually over the time. Also, investors are more careful about the process of buying. So, we can focus on the fact that both who sell and who buy expect price falling. And this is about 66,6%, which makes this strategy attractive.
When a price falls, it crashes down in a moment, and the market is flooded with a significant amount of an asset. So, both volume and volatility increase and go up.
Picture 1. The chart of a price and an ATR indicator of EUR/USD for 26.12.2018.
As we can see in picture 1, both assumptions that we made before are respected, and the price falls much faster than rises. Also, if we check the indicator's chart, then we can see that it began to rise at the moment of price falling.After we've understood the basics of this strategy, and realized on which asset we will make money, then we need to define how to determine the moment of increased volatility and accelerated pace of price changing.
We have indicators that can help us with this. We will need only two of them:
- ATR (Average True Range);
- ROC (Rate of change).
ATR is used for defining volatility on markets, and ROC defines the rate of price growth.
Strategy signals.
Picture 2. The chart of a price, ATR and ROC indicators, and signals for forecasting "LOWER" on EUR/USD on 26.12.2018.
The "LOWER" bet should happen at the moment when we see that the ATR chart began to demonstrate a raised trend, and the ROC chart indicator simultaneously drops below 0.
As we can see in picture 2, the signals were pretty precise, however, we did not know how long such price falling may continue. We've already understood that it happens fast, unpredictable and rapidly. That's why it is very risky: rapid price falling may change to price correction. However in this strategy, it is also assumed that a trader is ready to react fast, so the correction should not be a problem.
Such a strategy is ideal for the markets with prolonged trends and upcoming corrections as well as for the markets with sideways trends. Generally, it means that it is relatively easy to earn with it. Good luck... Your Majesty:)