Jermaine’s trading career began about two years ago on an easy to begin platform. Realizing that he wanted to make bigger wins, he decided to get into options trading.
After a big loss in options trading, he decided to take a break from trading and do some research on ways to better his trading game. He stumbled upon all the forex trader influencers on Instagram which led him to reading an article by Rob Smith titled “What Do We Know to be True About Price Action.” From there he began using Rob Smith as his guide to trading, following him on all his social media platforms and learning from him. Thus, started his trading career using The Strat with a small account.
One of the main strategies Jermaine points out about trading on the Strat is that there’s no need to use indicators. Strat traders trade on what he describes as three universal truths.
The Three Universal Truths to Trade on While Strat Trading:
Jermaine says that the three things known to be true while trading on The Strat are actionable signals, time frame continuity, and broadening formations. When looking at actionable signals there are hammers, shooters, and reversals to take into consideration.
Hammers are important because they indicate when to take immediate entry. When a candle breaks through the hammer candle you know that a reversal is present and there is a good potential to entry. Some of the main actionable signals Jermaine points out are:
- Momo Hammers. These signals identify when the price has shot up but the price was trying to be dragged down and then the buyer stepped in. The entry point is on the next candle where it breaks at the top of the momo hammer.
- Shooters. These signals occur when the seller starts taking profits, creating the shooter. The shooter is live on the next bar, and that’s when you hit it. It’s important to remember that the shooter doesn’t indicate to get out right away, you have to look at the next bar to determine what to do.
- Inside Bars. The most important thing to remember is to not trade anything forming on an inside bar. Wait until something breaks either on the upside or downside before taking it.
Actionable signals are important because they tell us why the price is moving. The actionable signals in themselves aren’t universal. It’s when they close and become actionable that make them universal truths.
Another big concept for those trading on The Strat to get acquainted with are reversals. These are important when it comes down to time frame continuity while looking at your charts. There are five reversal patterns that Jermaine goes over during the webinar. Be sure to check out the webinar along with this post to see in depth chart examples of what these reversals look like.
- 2-2 Reversal on the Upside. This reversal occurs when the hammer goes in force. Scenario 2, indicated in the image below, doesn’t always necessarily have to be a hammer, hammers just make things easier to spot. The important takeaway is the wait to see if the next bar goes above the hammer or not. If it doesn’t then don’t do anything.
- 2-2 Reversal on the Downside. This occurs when the shooter goes into force and the next live bar opens up as a Scenario 2. This pattern indicates that what you bought is working.
- 2-1-2 to the Upside. This is when you look for an inside bar. At any time frame, once the bar closes based on the time frame continuity, you wait until for the next Scenario 2 to break to the upside.
- 2-1-2 Reversal on the Downside. You’ll see this when the price goes below the inside bar. Jermaine says this is easily spotted by those who are more experienced with options trading.
- 3-1-2 Reversal. This pattern refers to anything that could break to the upside or downside. Here, you’re looking to see if the next live bar opens as a Scenario 2.
Overall, the biggest takeaway from the reversal patterns is that Strat reversals work on any time frame. However, Jermaine states he commonly watches more closely to them on the 60 minutes. Once you become more experienced you can start identifying them on smaller time frames. Trading using The Strat with smaller accounts may be more beneficial on larger time frames, due to the PDT rule constraints.
Time Frame Continuity
This is one of the most important concepts when trading on The Strat. Jermaine says that having all your charts set-up (starting from bottom right corner, going counterclockwise) by monthly, weekly, daily, and 60. The way to view these is start with the biggest time frame and work your way around. If all of them are green, on the 60 is when you confirm your entry trigger. The biggest thing to remember, especially when working with small accounts is that a gain is a gain. Even if it’s small. Losing on a small account could set you back months. It’s good to set strict stop limits on yourself. Jermaine says that he sometimes even stops at a $10 loss and calls it a day, until tomorrow.
When mastering time frame continuity keep in mind control, confirm, conflict, and change. Remember that the 60 is always in control because it tells you what’s happening in that moment. Reversals become important when you run into conflict. Identifying reversals such as 2-1-2 on the downside that forms a shooter can turn the rest of your time frames red, if it continues.
Lastly, broadening formations are important when trying to identify larger outside bars with higher highs and lower lows. These can be easily identifiable when you notice choppiness around the greater outside bar.
Creating a Watchlist
When Jermaine creates his watchlist he automatically sets up the monthly chart and looks for anything that is on a Scenario 2 for that month. This tells you that buyers are present. After adding these to his watchlist he looks for actionable signals on a weekly to confirm what’s happening on a monthly.
Entry and Stops
Jermaine says he stops right above the hammer every time. This is to ensure that you can get out quickly. With a small account, it’s important to get out when profits aren’t going to happen and to grab at the opportunity when profit presents itself. Tight stops allow you to preserve your capital while allowing you to rebuy if things change. Don’t set your stops way above the shooter or way below the hammer. With small accounts, you don’t hold losers.
Learning how to trade on The Strat all comes with practice. Understanding and recognizing patterns to identify different reversals can set you up for success in this line of trade. Using Benzinga Pro to create your watchlists to identify Scenario 2s can make identifying these patterns easier. Additionally, on Benzinga Pro, you can easily have all your charts set up as recommended by Jermaine. Starting your free trial is easy, all you have to do is sign-up here.
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