Strategy: TheSTRAT
Strategy: TheSTRAT
TheSTRAT is a trading method developed by Rob Smith (@RobInTheBlack) during the course of his 30-year career in the market.
TheSTRAT is a charting method that requires the analysis of various timeframes and consists of three primary components: major direction, candle bar analysis, and price direction.
What is a Candlestick?
A candle shows the opening, closing, high, and low price for a certain time period. When a candle goes up in a time period, it is colored green and if it goes down, it is colored red.
Now that we briefly covered what a candlestick is. Lets look at the different types of candle bar types within TheStrat method.
Note: green candlestick is labeled as u(up) and red candlestick as d(down)
Three Candle Bars Types
Candle analysis is used to determine whether or not there is a full time frame continuity or conflict. This assists traders in evaluating if the trend is continuing, correcting, or reversing. There are three different types of candle bars within this strategy:
Inside bar denotes a break in the current trend. It might be the cause of a significant reversal. When the current candle falls entirely within the previous candle, it forms an Inside Bar.
💡 Inside bar = 1 bar
Directional bar implies that price movement will continue in the same direction. When the current candle overlaps one side of the previous candle, the result is a Directional Bar.
💡 Directional bar = 2 bar (green = u & red = d)
Outside bar indicates a reason for price behavior to widen in the future and in the near future. When the current candle encompasses all sides of the previous candle, this is known as an Outside Bar.
💡 Outside bar = 3 bar
The trading method's main conclusion is based on the consistency of the time period. Look at the direction of the higher time frame candles to determine the current trend's direction. Based on the higher time frame's appreciation or rejection levels, determine support and resistance levels.
Important Principles of TheStrat
The core principles of Rob's strategy are Time Frame Continuity, Broadening Formations, and Inside Bars
These principles are not listed in any particular order of significance. Within Rob's method, each principle is equally important. Investors must examine a stock (or any investment, for that matter) in the framework of these three criteria in order to uncover high probability, low risk/high return trade setups.
Time Frame Continuity
Instead using moving averages or other lagging indicators, multiple timeframes are the best way to determine price direction. Full Time Frame Continuity describes the ideal condition in which all time frames point in the same direction.
If a stock is trading above all of these opening prices, we consider it is in full time frame continuity to the upside. When a stock is trading below the opening price we consider the stock to be in full time frame continuity to the downside.
Broadening Formations
A broadening formation is a price chart pattern distinguished by escalating price volatility and is depicted as two divergent trend lines, one rising and one decreasing. It frequently happens following a big increase or decrease in the movement of asset prices. On a chart, it is recognized by a succession of higher highs and lower lows.
The chart below depicts a standard expanding formation.
When Directional Bars and Outside Bars emerge, they form Broadening Formations that fit into a triangle and eventually lead to reversals or expansions where trading opportunities may exist to capitalize.
Inside Bars
Inside bars indicate a market's consolidation period and reaches equilibrium. They occur frequently when a market makes a significant move and 'pauses' to consolidate before making its next move. They can, however, occur during market turning periods and serve as reversal signals from key support and resistance levels.
Using TheStrat
Firstly, you must determine your investing/trading style then define your time frame to trade or invest. Using the previous candle bar, you can determine the overall setup of the current candle and analyze the entry, target, and stop-loss.
So, now let us analyze the individual bar characteristics that will help you determine the setup and followings;
Entry- You may start a position based on the longest time period and keep adding as price moves as expected, or you can take a complete position based on your time frame of choice.
Target/Stop-Loss - You may choose to capture gains and lock in profits by exiting your position on a trend and characteristic of the current time frame, or you may wish to cut the losses if the trend failed to materialize.
Indicators Suite
"MyntBit theStrat" is designed to implement a technical trading strategy called the STRAT, which focuses on analyzing price patterns like inside bars, outside bars, and directional bars across multiple timeframes (e.g., daily, weekly, monthly).
Features include:
Multi-Timeframe Analysis: It pulls in price data (high, low, open, close) from different timeframes (e.g., daily, weekly, monthly) and compares current price action with past periods.
Candlestick Pattern Detection: It identifies specific patterns such as inside bars (1), directional movement (2), and outside bars (3). It also checks for reversal candlestick patterns like hammers and shooting stars, which signal potential trend reversals.
Alerts and Signals: It plots visual signals on the price chart to mark when certain patterns occur. It also generates alerts based on these patterns, allowing traders to be notified when key conditions are met.
Table Display: The script displays important data in a table on the chart, summarizing information about daily ranges, Average True Range (ATR), and pattern signals.
Tradingview: theStrat by Myntbit
Additional Rescources:
The STRAT Method - Lucid Trend
TheSTRAT Patterns - TrendSpider
Rob Smith (@RobInTheBlack) - Twitter
The Strat Cheat Sheet - #TheStrat created by Rob Smith
Infographic hand drawn by @TradeSniperSara ©️2020 Digitized by @Kostc