The Hybrid 10-Step Trading Strategy: Integrating Retracement for Better Trades

Contents:

• Understanding the Core Concepts

• The Hybrid 10-Step Trading Strategy

• Final Thoughts

The Modified 10-Step Trading Plan has long been a structured approach for executing trades with precision and discipline. However, traders often struggle with identifying the best entry zones for high-probability trades. By integrating retracement trading principles, we can enhance the 10-Step Strategy with high-probability pullback entries, leading to better trade execution, risk management, and overall performance.

Understanding the Core Concepts

To merge retracement principles into the Modified 10-Step Trading Plan, it is crucial to understand the key market mechanics each method focuses on:

✅ The Modified 10-Step Trading Plan:

• A structured step-by-step trading process.
• Focuses on market state, moving averages, and power bars.
• Includes tactical stop-loss management and counter-trend trading.

✅ Retracement Trading:

• Based on pullbacks after strong price moves.
• Uses probability-based retracement zones (33%, 50%, 66%).
• Helps traders enter at the best possible prices instead of chasing breakouts.

By combining these two strategies, traders can improve trade selection, avoid poor entries, and gain better control over risk management.

• The Modified 10-Step Trading Plan: Enhancing Risk Management and Flexibility

• Micro Stock Trader’s Adopted Retracement Trading Strategy

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The Hybrid 10-Step Trading Strategy

A More Effective Approach to Trading

The following table outlines the Hybrid 10-Step Trading Strategy, which retains the 10-Step Plan as the foundation but refines entry zones, profit-taking, and tactical positioning using retracement levels.

Step	Action	Key Considerations	Integration of Retracement Trading
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 for trend direction.	Check if price is in a single-bar or multi-bar strength move.
Step 2: Position, Location & Key Retracement Zones	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.
Step 3: Power Bars & Retracement Strength	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%).
Step 4: Entry with Confirmation from Both Strategies	Enter only if both retracement levels & technical signals align.	Use breakouts, reversals, and moving average confluence.	Avoid trades if retracement exceeds 100%, signaling trend failure.
Step 5: Tactical Stop-Loss Adjustments	Place stop-loss at logical technical levels (recent swing low).	Adjust stop-loss dynamically as price moves in your favor.	Deeper retracements (50%-66%) require tighter stops.
Step 6: Color Change as a Secondary Confirmation	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.
Step 7: Profit-Taking Aligned with Retracement Targets	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%).
Step 8: Re-Entry at Secondary Retracement Pullbacks	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.
Step 9: Tactical Position Management	Adjust exposure based on retracement depth.	Reduce position size when risk increases.	Shallower retracements (33%) → Larger positions, Deeper retracements (66%) → Smaller positions.
Step 10: Counter-Trend Trades Only When Retracement Fails	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.

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Final Thoughts

By combining retracement trading principles with the Modified 10-Step Trading Plan, traders can achieve:

✔️ Improved trade selection by filtering low-probability setups.

✔️ Better entries by waiting for pullbacks instead of chasing breakouts.

✔️ Enhanced risk management with tighter stops in deeper retracements.

✔️ More disciplined trade execution based on both market state and probability zones.

This Hybrid 10-Step Trading Strategy provides a structured yet flexible trading methodology that maximizes trend-following opportunities while minimizing risk. 🚀

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Disclaimer: This post is for informational purposes only and should not be considered financial advice. Always do your own research before making any trading decisions.

Related Readings

• Micro Stock Trader: Comparing the Modified 10-Step Trading Strategy vs. Retracement Trading Strategy

• Micro Stock Trader: Week 2 Trading Update: Detailed Assessment and Outlook

• Micro Stock Trader: My Stock Trading Plan: Inspired by Oliver Velez’s 8-Step Strategy

• Micro Stock Trader Portfolio Tracker Page

• Micro Stock Trader: Revealed: Our Top 3 Shariah-Compliant Stocks for a Winning Portfolio

• Micro Stock Trader: Investing in Semirara Mining and Power Corporation (SCC): What the Technical Indicators Are Telling Us

• Micro Stock Trader: Investing in Monde Nissin Corporation (MONDE): What the Technical Indicators Are Telling Us

• Micro Stock Trader: Investing in Premiere Island Power REIT Corporation (PREIT): What the Technical Indicators Are Telling Us

• Micro Stock Trader: Investing in Asian Terminals Inc. (ATI): What the Technical Indicators Are Telling Us

Comparing the Modified 10-Step Trading Strategy vs. Retracement Trading Strategy

Contents:

• Modified 10-Step Trading Strategy Scenario

• Retracement Trading Strategy

• Key Differences Between the Two Approaches

• Conclusion: Which Strategy Is More Effective?

As we refine our live trading approach under the Budget Ethical Trading Account (BETA), we are evaluating two distinct methods: the Modified 10-Step Trading Strategy and the Retracement Trading Strategy. Each approach offers unique insights into market behavior, risk management, and execution style. This post compares both models, highlighting their strengths, weaknesses, and potential applications.

Modified 10-Step Trading Strategy: Key Support, Resistance, and Risk Management in Action

Retracement Trading Strategy: Using Key Levels to Identify Trend Continuation & Reversal

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1️⃣ Modified 10-Step Trading Strategy Scenario

🔹 Primary Focus: Tactical trading based on key support and resistance levels with strict stop-loss placement.

🔹 Entry Strategy:

• 67.00 as Key Support Level – Entry only if confirmed by a Green Elephant Bar with increasing volume.

• 71.50 as Hard Resistance – Immediate exit on approach unless volume supports a breakout.

• 65.50 as Hard Stop-Loss – Exit entirely if price falls below this level to prevent further drawdowns.

• 60.00 as Bargain Re-Entry Zone – Potential entry if price reaches this level and shows reversal confirmation.

🔹 Risk Management:

• Volume confirmation required before any entry.

• Stop-loss placement prioritizes capital preservation.

• Focus on real-time decision-making based on price action.

🔹 Main Objective: Capital protection and execution discipline, ensuring the strategy adapts dynamically to real-time market conditions.

📌 Full Analysis: Modified 10-Step Trading Strategy Scenario

• The Modified 10-Step Trading Plan: Enhancing Risk Management and Flexibility

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2️⃣ Retracement Trading Strategy

🔹 Primary Focus: Retracement-based entry and exit levels using percentage-based zones to predict trend continuation or reversals.

🔹 Entry Strategy:

• 100% Retracement at 104.4 – Origin of power move (October 1, 2024).

• 75% Retracement at 95 & 55% Retracement at 88 – Trend Reversal Zones where price is likely to reject and reverse.

• 45% Retracement at 84 & 25% Retracement at 77 – Trend Continuation Zones, indicating where price could resume the downtrend.

• 0% Retracement at 68 – Current bottom of the power move, which is a potential reversal point.

🔹 Risk Management:

• Focus on retracement levels rather than hard stop-loss points.

• Entries and exits are predefined based on historical power moves.

• No immediate reliance on real-time volume confirmation for execution.

🔹 Main Objective: Strategic swing trading using price retracements to identify optimal trend continuation or reversal zones.

📌 Full Analysis: Retracement Trading Strategy

• Micro Stock Trader’s Adopted Retracement Trading Strategy

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Key Differences Between the Two Approaches

Aspect	Modified 10-Step Trading Strategy	Retracement Trading Strategy
Trading Approach	Tactical, real-time trading decisions	Predefined retracement zones
Entry Criteria	Based on support/resistance levels & volume confirmation	Based on retracement percentages from prior moves
Risk Management	Hard stop-loss at 65.50, bargain entry at 60.00	No predefined stop-loss, relies on retracement zones
Focus	Active position management & dynamic adjustments	Swing trading with predefined reversal/continuation points
Main Strength	Adaptable to real-time market movement	Systematic approach using Fibonacci-style retracements

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Conclusion: Which Strategy Is More Effective?

• The Modified 10-Step Trading Strategy is ideal for traders who prefer active trading, risk management, and real-time execution adjustments.

• The Retracement Trading Strategy is suitable for traders focusing on swing trading, predefined retracement-based entries, and trend-following.

• Combining elements of both strategies can provide a more well-rounded trading approach, using retracement zones as guides while executing based on the Modified 10-Step strategy’s real-time risk management.

📌 Which strategy do you prefer? Follow our live updates as we test both approaches in the BETA Trading Account! 🚀

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Disclaimer: This post is for informational purposes only and should not be considered financial advice. Always do your own research before making any trading decisions.

Related Readings

• Micro Stock Trader: Week 2 Trading Update: Detailed Assessment and Outlook

• Micro Stock Trader: My Stock Trading Plan: Inspired by Oliver Velez’s 8-Step Strategy

• Micro Stock Trader Portfolio Tracker Page

• Micro Stock Trader: Revealed: Our Top 3 Shariah-Compliant Stocks for a Winning Portfolio

• Micro Stock Trader: Investing in Semirara Mining and Power Corporation (SCC): What the Technical Indicators Are Telling Us

• Micro Stock Trader: Investing in Monde Nissin Corporation (MONDE): What the Technical Indicators Are Telling Us

• Micro Stock Trader: Investing in Premiere Island Power REIT Corporation (PREIT): What the Technical Indicators Are Telling Us

• Micro Stock Trader: Investing in Asian Terminals Inc. (ATI): What the Technical Indicators Are Telling Us

Micro Stock Trader’s Adopted Retracement Trading Strategy

Contents:

• Understanding Retracement in Trading

• The Key Levels of Retracement Trading

• Equivalent Discussion for a Downtrend Power Move

• The Sweet Spot for Trading Retracements

• Practical Application

• Tactical Entry Assessment for URC at 68 Level (Week 4)

• Conclusion

At Micro Stock Trader, we continuously refine our trading strategies to align with sound, proven methodologies. One approach we are incorporating into our toolkit is Oliver Velez’s Retracement Trading Strategy, as outlined in his YouTube presentation, "How To Trade Key Retracement Without Indicators" (Watch here).

Week 4 analysis of Universal Robina Corporation (URC) using the Retracement Trading Strategy, highlighting key trend reversal and trend continuation zones. The stock is currently testing the 0% retracement level at 68, a critical point for potential rebound or further downside continuation.

Understanding Retracement in Trading

A market move that shows a strong burst of momentum often undergoes a natural retracement before resuming its trend. The key to retracement trading is understanding when a pullback presents a viable trading opportunity versus when it signals potential trouble.

According to Oliver Velez, there are two types of strength moves in the market:

1. Single-bar strength move: A single large power bar showing aggressive movement in price.

2. Multiple-bar period of strength: A sustained upward or downward trend over several bars.

Both types of moves create key levels that define retracement zones, which traders can use to make informed decisions.

The Key Levels of Retracement Trading

When a stock experiences a significant strength move, it establishes two critical levels:

• Top of Strength Move: This is the peak of the power move, marking the 0% retracement level.

• Origin of Strength Move: This is where the power move began, marking the 100% retracement level.

The retracement occurs when the price pulls back from the peak of the move. The probability of a rebound to the original strength level depends on how deep the retracement goes. The breakdown of probabilities is as follows:

• Retracement to 33% (1/3 of the move):

  • 80% probability of rebounding back to the top of the strength move.

  • Considered a high-probability trade setup.

• Retracement to 50%-66% (midpoint to 2/3 of the move):

  • 50% probability of rebounding back to the top.

  • The risk increases as price moves deeper into the retracement zone.

• Full retracement (back to origin or 100% retracement):

  • 10% probability of rebounding back to the top.

  • A full retracement indicates potential trend failure.

Equivalent Discussion for a Downtrend Power Move

In the case of a downtrend or downward power move, the retracement process works in reverse. The price experiences a strong decline, and a counter-trend rally or pullback occurs before potentially resuming the downward trend. The probability of resuming the downtrend depends on the retracement depth:

• Retracement to 33% (1/3 of the move):

  • 80% probability of price resuming its downward move to the prior low.

  • Considered a high-probability continuation trade setup.

• Retracement to 50%-66% (midpoint to 2/3 of the move):

  • 50% probability of price resuming its downward move.

  • Increased risk as price moves deeper into the retracement zone, signaling potential trend hesitation.

• Full retracement (back to origin or 100% retracement):

  • 10% probability of price resuming the downward move.

  • A full retracement suggests potential trend reversal or trend failure.

The Sweet Spot for Trading Retracements

The most favorable area for high-probability trades lies in the 25%-45% retracement range. This zone offers 60% to 90% win probabilities, making it the optimal entry area for a retracement trade.

By waiting for a pullback into this sweet spot zone, traders increase their chances of capturing a continuation move back to the highs (in an uptrend) or back to the lows (in a downtrend), while avoiding trades that may result in trend reversals.

Practical Application

1. Identify a Strong Move: Look for either a single-bar power move or a multi-bar strength move.

2. Mark Key Levels: Identify the top of the move (0%) and the origin (100%).

3. Monitor Retracement Levels: Wait for a pullback into the 25%-45% retracement range.

4. Execute Trades with Confirmation: Use price action signals or volume confirmation before entering a trade.

5. Set Targets and Stop Losses: Aim for a return to the top (in an uptrend) or to the prior low (in a downtrend) while managing risk accordingly.

Tactical Entry Assessment for URC at 68 Level (Week 4)

Scenario Analysis

Micro Stock Trader is considering a tactical entry at 68 level for 90 URC shares in Week 4. Given the recent downward power move from an origin of 104.40 (October 1, 2024) to a low of 67.80 (January 17, 2024), the retracement strategy suggests that URC is at a critical level where a potential trend reversal may occur.

Rationale for Entering at 68 Using a Stop Limit Order

The rationale for entering at 68 for 90 URC shares is to live test the Stop Limit Order by DragonFi. A Stop Limit Order is a type of order designed to help traders buy breakouts, limit losses, or take profits.

To place a Stop Limit Order, two prices must be specified:

• Stop Price: The price at which the order becomes executable. We are setting our Stop Price at 67.80.

• Limit Price: The highest price we are willing to pay (if buying) or the lowest price we are willing to accept (if selling). We are setting our Buy Limit Price at 68.

This means our order will only be executed at a price that is at or below the Limit Price of 68, ensuring that we won’t pay more than 68 for the stock. This strategy allows for controlled entry into the trade while minimizing slippage.

Strengths of Entering at 68 Level

• Deep retracement suggests discounted entry: A price near the lowest level of the move provides an opportunity for maximum upside potential if a reversal occurs.

• Potential breakout from oversold levels: If buying momentum builds up, it could trigger a move towards the trend reversal sweet spot (88.00 - 95.00 range).

• Clear stop-loss placement: Entry at 68 allows traders to define a tight stop-loss just below 67.80, minimizing downside risk.

Weaknesses and Risks

• Potential continuation of downtrend: The stock may still be in a bearish phase, and a break below 67.80 could signal further downside.

• Limited confirmation of trend reversal: The stock has not yet reached the 55%-75% retracement levels where reversals typically gain momentum.

• Low probability of immediate rally: At 68, the probability of an immediate move back to 104.40 is low, given that it has yet to break key resistance levels.

Probabilities Based on Strategy

• If URC rebounds into the sweet spot (88.00 - 95.00): 60%-90% probability of trend reversal.

• If URC fails to reclaim above 75% retracement level (95.30): Potential fake breakout leading to another downtrend leg.

• If URC breaks below 67.80: High risk of continued sell-off and new lower low formation.

Overall Assessment

A tactical entry at 68 for 100 URC shares presents a high-risk, high-reward scenario. Given that this level represents an extreme retracement, a trend reversal strategy should be confirmed by price action signals (e.g., bullish engulfing, high buying volume). The safest approach would be:

• Partial entry at 68, monitoring price reaction.

• Adding more positions near 75% retracement (95.30) if the trend reversal gains traction.

• Strict stop-loss below 67.80 to prevent deep losses.

Conclusion

While the retracement trading strategy provides valuable insights, it is crucial to wait for confirmation before committing fully to a reversal trade. A tactical entry at 68 could yield significant rewards if the stock rallies into the trend reversal zone, but risk management is key to prevent substantial losses in case of further declines.

Retracement trading is a powerful tool when used correctly. By focusing on the 25%-45% retracement zone, traders can maximize their win rates while minimizing risks. At Micro Stock Trader, we believe this method provides an effective framework for identifying high-probability trading opportunities without relying on additional indicators.

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Disclaimer: This post is for informational purposes only and should not be considered financial advice. Always do your own research before making any trading decisions.

Related Readings

• Micro Stock Trader: Week 2 Trading Update: Detailed Assessment and Outlook

• Micro Stock Trader: My Stock Trading Plan: Inspired by Oliver Velez’s 8-Step Strategy

• Micro Stock Trader Portfolio Tracker Page

• Micro Stock Trader: Revealed: Our Top 3 Shariah-Compliant Stocks for a Winning Portfolio

• Micro Stock Trader: Investing in Semirara Mining and Power Corporation (SCC): What the Technical Indicators Are Telling Us

• Micro Stock Trader: Investing in Monde Nissin Corporation (MONDE): What the Technical Indicators Are Telling Us

• Micro Stock Trader: Investing in Premiere Island Power REIT Corporation (PREIT): What the Technical Indicators Are Telling Us

• Micro Stock Trader: Investing in Asian Terminals Inc. (ATI): What the Technical Indicators Are Telling Us