Jermaine’s trading career began about two years ago on an easy to begin platform. Realizing that he wanted to make bigger gains, he decided to get into options trading with his own trading strategy.
After a big loss in options trading, he decided to take a break and do some research on a trading strategy that would improve his game. He stumbled upon 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 using price action, following Rob on all his social media platforms and learning from his trading strategy. Thus, Jermaine started his trading career using The Strat as his personal trading strategy 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. With these simple data points, you can build a trading strategy.
Hammers are necessary 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 and when our trading strategy should begin to move forward. The actionable signals in themselves aren’t universal. It’s when they close and become actionable that make them universal truths.
Reversals are another big concept with which those trading on The Strat should get acquainted. These are important when it comes down to time frame continuity while looking at your charts. This is different than the way a swing trader would do it. There are five reversal patterns that Jermaine goes over during his trading strategy 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 type of 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 type occurs when the shooter goes into force and the next live bar opens up as a Scenario 2. This pattern indicates to the day trader 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 the day trader who is 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.
The biggest takeaway from these reversal patterns is that Strat reversals work on any time frame, for any day trader. 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 could be one of the more advantageous stock market strategies 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 is vital for your success. In fact, you could do this when you plan on swing trading, using The Strat or experimenting with your portfolio. Organization, then, is key.
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 trading opportunities 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 on his trading platform 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 above and beyond a target price.
Entry and Stops
Jermaine says he stops right above the hammer in his trading system every time. This is to ensure that you can exit 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 situations 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 with this trading plan. Using Benzinga Pro to create your trading system and identify Scenario 2s can make identifying these patterns easier. Additionally, on Benzinga Pro, you can easily have all your charts set up to meet the needs of your trading plan, as recommended by Jermaine. Starting your free trial is easy, all you have to do is sign-up here.
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