Trading strategy ‘HHLL’: just follow price action

This article will describe a strategy called HHLL. You might have seen similar strategies with other names, as this one is based on classic forex principles. The great part is that you don’t need to use any indicators. The main point is to follow the price action. Some indicators still can be helpful for better visualization, however. In addition, feel free to add anything you want to this strategy, personalize it to your liking! By the end, you can even come up with a new strategy of your own, which suits your trading approach and vision.

Trend definition

To start with, let’s remember the definition of trend.

A trend is the general direction of the price of an asset on the market. An uptrend (a bullish trend) consists of a series of higher highs and higher lows – prices are moving up. A downtrend (a bearish trend) is classified as a series of lower lows and lower highs – prices are moving down. The best moment to enter the market is a trend reversal.

Uptrend

Let’s say there is an uptrend on the chart. The first high (H) is followed by the first low (L), which is followed by the second high (HH – higher high). After that, if the price drops out of the trend structure and forms a lower low (LL), a trader should be ready to sell when the price reaches a certain level, which we will discuss later.

Downtrend

Let’s look at the opposite case: a downtrend. The first low (L) is followed by the first high (H), which is followed by the second low (LL). After that, if the price breaks the trend structure and forms a higher high, a trader should be ready to buy when the price reaches a certain level.

Entry rules to SELL

Let’s discuss where and how to open a sell order. The perfect moment for entry is the rollback to the first high (look at the picture below). This structure works as there are some so-called ‘big players’. To make a huge selling, they need an enormous number of buy orders to make their trades more profitable. The area between H and HH represents the zone of increased liquidity. Thus, there are many buyers as they believe in the further continuation of a trend.

The better way to enter is to use a pending order. First, you should wait for the formation of the lower low (LL). Second, you should place a sell limit at the level of the first high (H).

Entry rules to BUY

By the same logic, in the case of buying, the zone of increased liquidity is located between the first and second low (L and LL in the picture below). There are a lot of sellers who believe the downtrend will keep going. Some traders buy too early, some of them panic and close their orders, and most have stop-losses in this area. That’s why a big player sees this moment as a great opportunity to buy. Wait for the formation of the higher high (HH) and set a buy-limit at the level of the first low (L).

Minimize risks

Use stop-loss

Just to remind you, a stop-loss is an exit order, which is used to limit the amount of loss a trader may take on if the trade goes against him.

In the case of selling, it’s a good idea to place a stop-loss slightly above the HH point. On the flip side, in the case of buying – put a stop-loss just below the LL point.

Use take-profit

Similar to a stop-loss, a take-profit order is an exit order. However, unlike SL, which limits a trader’s loss on a trade, TP indicates a particular price at which a profitable trade will automatically close. In other words, TP is a profit target. You need to place your TP at the level you expect the price to reach.

There are two targets for every case. For selling, the first take-profit should be at the first low (L) and the second take-profit at the second low (LL).

For buying, the first take-profit should be at the first high (H) and the second take-profit at the second high (HH).

And that’s all! Try this strategy in your trading!

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