How to Read the Trade Strategies

The trade strategies published every day can’t be put to use in actual trading unless you read them correctly, so this page explains how to read them.

Assumptions Behind the Trade Strategies

This site recommends day trading.
There are many definitions of day trading, but on this site the 1-hour chart (H1) is the base timeframe for building strategies.
In other words, the trade strategies are built according to Dow Theory on the 1-hour chart (H1).
Then, multi-timeframe analysis is used to assess the edge and expectancy of each trade.

However, if entry points are planned on the 1-hour chart (H1), trade opportunities drop to less than one a day, which hurts capital efficiency.
That’s why entry points are selected on the 15-minute chart (M15).
In other words, trades are executed on the 15-minute chart (M15).
This is why the daily trade strategies are shown on the 15-minute chart (M15).

The important point to note is that the trade strategy is primarily based on the 1-hour chart (H1).
There will be times when the trend on the 1-hour chart (H1) and the trend on the 15-minute chart (M15) run in opposite directions, but as a rule the trade strategy follows the trend on the 1-hour chart (H1).
That said, depending on the results of the multi-timeframe analysis, I sometimes lay out a scenario that goes against the 1-hour chart (H1).

Three Scenarios

Every trade strategy always includes three scenarios: A, B and C.
Scenario A is always a “buy scenario” and Scenario C is always a “sell scenario.”
Whether Scenario B is a buy or a sell depends on the market context.

When the Areas Are Clearly Separated

In most cases, as in the chart above, the scenarios are set up so that the area to view with a bearish bias and the area to view with a bullish bias are clearly distinguishable.

When There Is a Zone

Occasionally, as in this chart, there is an area shaded in red.

I define this red-shaded price zone as a zone, and in a word it is “an area where decisions are difficult.”
In most cases, the decision is difficult because the trade judgment on the 1-hour chart (H1) and the trade judgment on the 15-minute chart (M15) don’t match.
It’s the kind of situation where the 15-minute chart (M15) calls for a bullish bias, but the 1-hour chart (H1) says sell.

The idea behind this zone is that, basically, you are looking to sell (or buy) in line with Scenario B, but since the bias has flipped in the short term, it’s a price zone where you wait for the bias to line up again with the trade direction of Scenario B.

Stop-Loss Level

As a rule, the stop-loss level is set at a price based on Dow Theory on the 15-minute chart (M15), the execution timeframe.

For example, if you judge the chart above to be Scenario A and enter long (buy), the stop-loss level goes where the green horizontal line is drawn.
When buying on Scenario A after a new high, the idea is to place it slightly below the price that becomes the pullback low on the 15-minute chart (M15).
Set it at the point where, if price goes beyond it, the Dow Theory trend breaks down.

This is because, although you enter expecting an uptrend that bounces off the A line like the blue line, price may drop after entry and form a deep pullback, as shown by the blue dashed line.
Even with a deep pullback like the blue dashed line, the reason to buy on the 15-minute chart (M15) is still intact, so the basic approach is to hold, which prevents stop-loss bleed.
(Depending on the chart, I may also cut the loss early.)

Entry Points

As a rule, the entry points are assumed to be the red lines on the chart that mark the branching points between Scenarios A, B and C.
However, nobody knows the future.
Please note that it is not “price reached the line, so enter immediately”.

The image above is a review chart with that day’s scenarios overlaid.
○2 is the entry point for a buy on Scenario A.
Normally, buying on Scenario A would mean entering at the blue ○, but price didn’t bounce and broke below the line, so the entry was made at ○2 after waiting for a pullback to form.
Of course, even if you had entered at the blue ○ without thinking, your stop-loss level should have been below the ○1 line, so you would likely have ended up in profit, but price could also have kept falling and turned into Scenario C.

Also, entering at the blue ○ and entering at ○2 involve different numbers of pips to the stop-loss level, so there is a big difference in the risk-reward ratio.
This has a major impact on long-term capital efficiency and realized P&L.

When thinking about entry points, it’s necessary to discuss the criteria for timing entries, but I plan to cover that another time in an article on my entry method.

Judging Whether Price Has Broken a Level

The trade strategies are built using the lines that define Scenarios A, B and C as well as many horizontal lines, and whether price has broken a line is judged by “whether the candlestick body has closed beyond it.”
Likewise, when reading the waves on the chart, whether price has broken a high (low) is judged by the candlestick body.

However, the high (low) that needs to be broken is measured to the tip of the wick.

As in the image above, the recent low that must be broken is taken at the wick tip, while whether it has been broken is judged by the body, so a new low is only confirmed with the candlestick in the red ○.

Estimated Pips

In the review of each day’s trade strategy, I note how many pips could have been gained by actually entering according to the scenario.
I also try to explain the reasons for entries and exits in as much detail as possible.
I hope this conveys how important it is to plan a trade strategy in advance and trade exactly according to it.

Note that trades where the market situation changed from the morning’s trade strategy are not counted.

In each monthly archive of the Daily Trade Strategy, you can check the pips gained for the month, as in the example below.
This is the total of the pips gained in each daily review.
Nobody can make the ideal trade at every entry point every day, so in general I think capturing about half of the estimated pips is plenty.

What I want you to take away is that if you narrow down your opportunities and keep stacking up only the trades that can be taken on a sound basis day after day, you can often gain plenty of pips in a month.