How to Trade Stair Strategy
If you don’t want to trade on pure randomness, you need a trade trigger before opening an order. When the price reaches your level of interest, you need some type of confirmation, and our entry technique can be applied across all types of trading strategies.
Now, before we go any further, we always recommend taking a piece of paper and a pen and note down the rules of this entry method. We also have training for building a foundation before a forex strategy matters.
For this article, we’re going to look at the buy side.a clear bullish trend
The first step is to identify a strong trading market that has a clear bullish trend.
The Stepping Stones strategy seeks to take advantage of the market trend, and it can be considered as another pullback trading strategy the same as our previous strategy the Four Candle Hammer Strategy.
If you need some basic Forex tips on how to identify a trend or what counts as a strong trading market, you can review our trading strategies library or simply read our Trend following strategy that demonstrates how to spot a trend.
Our team at Trading Strategy Guides has discovered that you can benefit more by using the stochastic indicator to trade pullbacks rather than trying to pick a falling knife or to jump in front of a train.
Consequently, you want to find a strong trading market like the one highlighted in the EUR/USD chart.
Now let’s see how the professional Forex traders make use of the stochastic indicator.
See below:
Step #2: The Stochastic indicator needs to develop a double bottom pattern. The second bottom has to be higher than the first bottom.
It’s critical to make the difference between the double bottom price pattern and the fact that we’re looking at the stochastic indicator to develop a double bottom.
The other condition is that we need the second stochastic swing low to be higher than the first bottom.
Once these two conditions are satisfied, we still need one more caveat to be fulfilled which brings us to the next rule of how to trade stair strategy.
See below:
Step #3: Both stochastic swing lows need to be in oversold territory below the 20 level
A stochastic reading below the 20 level suggests that the market is oversold and there is a high chance of reversal.
Many times a market can remain in oversold or overbought territory longer than you can remain solvent which is the reason why we have put in place the other trading rules so we can avoid this situation. Here is how to identify the right swing to boost your profit.
Now it’s time to switch our focus to the actual price and see the relationship between the stochastic indicator and the price action that needs to be satisfied.
See below:
Step #4: Look for divergence to develop between the stochastic indicator and the market price
Before we go any further than this, we need to clarify one thing.
The way people trade divergence is by using a variety of momentum based indicators and measure or compare when the momentum indicator and the price diverge.
In other words, when the price makes a lower low but the momentum indicator fail to make a lower low and instead makes a higher low then we have a situation where we have divergence.
So, what type of divergence we want to see?
In plain English, we look for the price not to drop that much compared with the stochastic indicator. Notice how the stochastic indicator is falling very fast into oversold territory, but the EUR/USD exchange rate is dropping at a much slower pace.
This is the type of divergence we want to see:
Note* the stronger the divergence between the stochastic indicator and the price the better the buy signal can be.
Next step will highlight the trigger for our entry order.
See below:
Step #5: How to trade stair strategy: Buy after the second bottom develops a stochastic crossover
The trigger for our entry is quite simple.
Once the second bottom produces a stochastic crossover, we jump straight into the market and start buying so we won’t miss a great entry opportunity. In this scenario, our entry is as close as possible to the end point of the retracement.
You really can use any type of exit strategy as you wish
Now, of course, this is just an entry technique but, we want to go one step forward and outline some strategies to protect your capital and at the same time to maximize your profits.
