Latest Update: June 11, 2022
Original Post (Published January 15, 2025)
Contents:
- Hybrid 10-Step Trading Strategy Checklist
- The Hybrid 10-Step Trading Strategy
- Percentage Retracement Trading: Finding the Best Entry Points
Use this checklist to evaluate your trading decisions at each step. After going through all steps, a final decision is made: BUY, HOLD, or SELL.
Master the markets with the Hybrid 10-Step Trading Strategy—a structured, systematic approach to making smarter trading decisions. Analyze trends, retracement zones, and power bars to determine whether to Buy, Hold, or Sell with confidence. 🚀📈 #TradingStrategy #SmartInvesting
Hybrid 10-Step Trading Strategy Checkilist
Step 1: Identify Market State & Trend Context
- Is the market in an uptrend? → BUY
- Is the market sideways? → HOLD
- Is the market in a downtrend? → SELL
Step 2: Position, Location & Key Retracement Zones
- Is the price above key moving averages and near a support level? → BUY
- Is the price at mid-range with no clear trend? → HOLD
- Is the price below key moving averages and near resistance? → SELL
Step 3: Power Bars & Retracement Strength
- Are there strong green power bars near support? → BUY
- Is there a mix of green and red bars with no clear strength? → HOLD
- Are there strong red power bars near resistance? → SELL
Step 4: Entry with Confirmation from Both Strategies
- Is there a confirmed breakout above resistance? → BUY
- Is there hesitation at key levels? → HOLD
- Has the breakout failed with price moving downward? → SELL
Step 5: Tactical Stop-Loss Adjustments
- Is the stop-loss set below support and trade moving favorably? → HOLD
- Is the price approaching stop-loss without recovery? → SELL
Step 6: Color Change as a Secondary Confirmation
- Is there a shift from red to green near support? → BUY
- Is there a mix of colors without a clear trend? → HOLD
- Is there a shift from green to red near resistance? → SELL
Step 7: Profit-Taking Aligned with Retracement Targets
- Has price reached a major resistance level? → PARTIAL SELL
- Is price still trending strongly without hesitation? → HOLD
Step 8: Re-Entry at Secondary Retracement Pullbacks
- Is price pulling back to a key support with a strong bounce? → BUY
- Is price consolidating without clear direction? → HOLD
- Has price broken below support? → SELL
Step 9: Tactical Position Management
- Is the market showing strong continuation signs? → HOLD
- Is price hesitating at key levels? → PARTIAL SELL
Step 10: Counter-Trend Trades Only When Retracement Fails
- Has price overextended in a downtrend with potential reversal signs? → BUY (Counter-Trend)
- Is price still in a strong downtrend with no recovery? → SELL
Final Evaluation
After completing all 10 steps, use the following guide to make a final decision:
- BUY: If multiple confirmations from support, power bars, trend continuation, and retracement bounce.
- HOLD: If there is no clear trend, price is ranging, or indicators are mixed.
- SELL: If trend is breaking down, price is below key levels, or there are strong red bars near resistance.
The Hybrid 10-Step Trading Strategy
A More Effective Approach to Trading
The Hybrid 10-Step Trading Strategy builds upon the foundational 10-Step Plan while integrating retracement levels to refine entry zones, profit-taking, and tactical positioning. Below is a detailed breakdown of the strategy:
Step 1. Identify Market State & Trend Context
- Determine if the market is in an Up, Top, Down, or Bottom phase.
- Use 20-MA and 200-MA to assess trend direction.
- Check if the price is in a single-bar or multi-bar strength move.
- Position, Location & Key Retracement Zones
Step 2. Assess price position relative to moving averages and support/resistance.
- Look for price above/below MAs and near key structural levels.
- Overlay retracement zones (33%, 50%-66%) to refine entry points.
- Power Bars & Retracement Strength
Step 3. Identify green power bars, narrow-range bars, and breakouts.
- Look for strong volume confirmations in power bars.
- Ensure power bars form within retracement sweet spots (25%-45%).
- Entry with Confirmation from Both Strategies
Step 4. Enter only if retracement levels & technical signals align.
- Use breakouts, reversals, and moving average confluence.
- Avoid trades if retracement exceeds 100%, as it signals trend failure.
- Tactical Stop-Loss Adjustments
Step 5. Place stop-loss at logical technical levels (e.g., recent swing low).
- Adjust stop-loss dynamically as price moves in your favor.
- Deeper retracements (50%-66%) require tighter stops.
- Color Change as a Secondary Confirmation
Step 6. Look for color change (red to green) at support levels.
- A color shift near a retracement zone strengthens trade conviction.
- If price changes color beyond 66% retracement, trade cautiously.
- Profit-Taking Aligned with Retracement Targets
Step 7. Execute partial exits at key resistance levels.
- Lock in gains while keeping a core position for further upside.
- Exit fully if retracement moves back to its origin (100%).
- Re-Entry at Secondary Retracement Pullbacks
Step 8. Re-enter if price pulls back after a failed move.
- Only re-enter at high-probability retracement zones.
- Retracement to 33%-45% offers the best re-entry chances.
- Tactical Position Management
Step 9. Adjust exposure based on retracement depth.
- Reduce position size when risk increases.
- Shallower retracements (33%) → Larger positions
- Deeper retracements (66%) → Smaller positions
- Counter-Trend Trades Only When Retracement Fails
Step 10. Trade against the trend only under extreme conditions.
- Use small position sizes and tight stop-losses.
- If price retraces 100% and fails, look for counter-trend trades.
- By integrating retracement analysis, this Hybrid 10-Step Trading Strategy refines trade selection and enhances risk management, creating a more effective trading approach.
Percentage Retracement Trading: Finding the Best Entry Points
Understanding Retracement in Trading
In stock trading, price movements often follow a pattern of strength followed by a natural retracement before continuing in the original direction. Recognizing these retracements allows traders to pinpoint high-probability entry points, reducing risk and maximizing returns.
The key to retracement trading is distinguishing between a healthy pullback—which provides an opportunity to enter a trade—and a trend failure, which signals potential trouble.
Types of Strength Moves
According to Oliver Velez, market movements can be categorized into two types:
- Single-Bar Strength Move – A single large power bar demonstrating aggressive price movement.
- Multiple-Bar Strength Move – A sustained price movement in one direction over several bars.
Both types of strength moves create key price levels, forming retracement zones that traders can use to make informed decisions.
Key Retracement Levels
When a stock undergoes a strong move, it establishes two important reference points:
- Start of Strength Move (100% Retracement Level) – The price level where the strong move began.
- End of Strength Move (0% Retracement Level) – The peak of the strength move (in an uptrend) or the lowest point (in a downtrend).
A retracement occurs when the price pulls back from the peak (in an uptrend) or rebounds from the lowest point (in a downtrend). The depth of this retracement determines the probability of a reversal back in the direction of the original move.
Retracement Levels and Reversal Probabilities
Understanding the depth of retracement helps traders identify the best entry points:
33% Retracement (Shallow Pullback)
- Probability of Reversal: 80% chance of rebounding back to the original high (in an uptrend).
- Trading Insight: Considered a high-probability trade setup with low risk.
50%-66% Retracement (Mid-Depth Pullback)
- Probability of Reversal: 50% chance of price bouncing back to the original high.
- Trading Insight: Increased risk as the price moves deeper into this retracement zone, requiring confirmation before entering a trade.
100% Retracement (Full Pullback to Origin)
- Probability of Reversal: Only a 10% chance of price rebounding.
- Trading Insight: A full retracement signals a potential trend failure, and traders should be cautious before entering a position.
The Sweet Spot for Retracement Trading
To maximize the probability of success, traders should focus on specific retracement ranges that provide the best opportunities for entering long positions.
Uptrend Retracement Sweet Spot
In a rising market, the 25%-45% retracement range provides the optimal entry zone. This range allows traders to buy at a discounted price before the stock resumes its upward movement.
Downtrend Retracement Sweet Spot (Best Entry for Reversal)
During a downtrend, the price experiences a strong decline before retracing upward. Traders looking for a reversal opportunity should focus on the 55%-75% retracement range.
- Probability of Reversal: 60%-90% chance of the stock reversing upward.
- Trading Insight: This range serves as an exhaustion zone where selling pressure weakens, increasing the likelihood of a bullish turnaround.
- Confirmation Signals: Look for power bars, increased volume, or momentum shifts before entering a trade.
By waiting for a stock to enter this reversal zone, traders can improve their chances of buying at a favorable price before a strong upward move.
Final Thoughts
Retracement trading is a powerful strategy for identifying low-risk, high-reward entry points. By understanding the probabilities of different retracement levels and focusing on the sweet spot zones, traders can make smarter, more strategic decisions.
Patience and discipline are key—waiting for the ideal retracement increases the probability of success while minimizing risk.
Step-by-Step Process for Stock Chart Evaluation Using Percentage Retracement (Without Indicators)
This streamlined approach eliminates reliance on indicators, focusing purely on price action, retracement zones, and confirmation through candlestick patterns and volume. The following steps distinguish between bullish trends and bearish trends, helping traders make informed decisions.
A. Evaluating a Bullish Trend
In a bullish trend, the price makes a strong upward move followed by a retracement. The goal is to enter at a favorable price before the trend resumes upward.
Step 1: Define the Power Move
- Identify the 100% Level (lowest point of the strength move).
- Identify the 0% Level (highest point of the strength move).
- Mark these levels on your chart to define the range of the power move.
Step 2: Divide the Power Move into Zones
- Zone 1 (0%-33%): Shallow pullback indicating strong bullish momentum.
- Zone 2 (33%-66%): A deeper retracement, offering better risk-reward opportunities.
- Zone 3 (66%-100%): Deeper retracement indicating a weakening trend, requiring caution.
- Sweet Spot (25%-45%): Overlaps Zone 1 and Zone 2. The ideal entry zone for a continuation of the uptrend.
Step 3: Evaluate Price Action in the Sweet Spot
As the price retraces into the Sweet Spot (25%-45%), observe the following:
- Candlestick Reactions:
- Look for bullish candlestick patterns such as hammers, bullish engulfing, or morning stars.
- Ensure the price forms a rejection (e.g., long lower wicks) in the Sweet Spot, showing buying pressure.
- Volume (if available): Watch for rising volume, which suggests increasing buying interest. Volume is optional but helps validate trades.
Step 4: Plan Your Trade
- Entry Point: Buy within the Sweet Spot after observing bullish candlestick confirmation.
- Stop-Loss Placement: Place your stop-loss below the 50%-66% retracement zone, where the trend is less likely to recover.
- Profit Target:
- Take partial profits near the 0% retracement level (previous high).
- Let the remainder ride for a continuation of the uptrend.
B. Evaluating a Bearish Trend
In a bearish trend, the price makes a strong downward move followed by a retracement (bounce). The goal is to identify a reversal opportunity where the price begins moving back toward the origin of the power move.
Step 1: Define the Power Move
- Identify the 100% Level (highest point of the strength move).
- Identify the 0% Level (lowest point of the strength move).
- Mark these levels on your chart to define the range of the power move.
Step 2: Divide the Power Move into Zones
- Zone 1 (0%-33%): A shallow bounce with weak recovery potential.
- Zone 2 (33%-66%): A deeper bounce with improving reversal potential.
- Zone 3 (66%-100%): A strong bounce approaching a full reversal.
- Sweet Spot (55%-75%): Overlaps Zone 2 and Zone 3. The ideal entry zone for a reversal back to the origin of the move.
Step 3: Evaluate Price Action in the Sweet Spot
As the price retraces into the Sweet Spot (55%-75%), observe the following:
- Candlestick Reactions:
- Look for bullish candlestick patterns such as piercing patterns, bullish engulfing, or hammers.
- Look for rejection candles (e.g., long lower wicks), indicating reduced selling pressure and growing buying interest.
- Volume (if available): Rising volume in the Sweet Spot can confirm reversal strength.
Step 4: Plan Your Trade
- Entry Point: Buy within the Sweet Spot after observing bullish candlestick confirmation.
- Stop-Loss Placement: Place your stop-loss below the 33% retracement level, which signals the price is unlikely to recover.
- Profit Target:
- Take partial profits at the 0% retracement level (origin of the downward move).
- Let the remainder ride if the price continues upward to the 100% retracement level.
Key Considerations for Trading Without Indicators
- Use Candlestick Patterns as Confirmation: Candlestick formations are your primary tool for gauging market sentiment and timing entries.
- Retracement Levels Are Your Guide: Focus on the retracement levels (33%, 66%, Sweet Spot) to identify high-probability zones without relying on indicators.
- Volume as Optional Validation: While volume is not required, it adds confidence to your analysis if available.
- Adapt to Price Action: Always let the price dictate your trading decisions. Avoid guessing or forcing trades outside the Sweet Spot.
This indicator-free strategy leverages the natural behavior of price retracements and candlestick confirmations to help traders buy, sell, or hold confidently. By focusing solely on price action, traders can simplify their approach while maintaining precision and discipline.
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