What is the Most Accurate Trading Strategy?

What is the most successful trading strategy?

It was in the early 2010s. One of the first strategies I tried – it had the word “tiger” in its name – was based on trend trading. You had to find three moving averages positioned in a certain order. Then you had to use the Relative Strength Index (RSI) for trend scalping. I also clearly remember that, as a beginner, I tried the Woodies CCI strategy that was based on the Commodity Channel Index (CCI) patterns.

Then what should you rely on?

I know for sure that most market participants lose money. Therefore, my point is that you should look for success right where most other traders fail. And naturally, this has nothing to do with popular technical indicators.

Below, I will consider 5 strategies with which my idea can be used to succeed in trading.

• Stop Loss Hunting

• Testing the Value Area

• Parallel Channels

• Cup with Handle

• Rounding Top

In my further insights, I will avoid explaining obvious things that can be unclear only to those who are starting from scratch.

Stop Loss Hunting

In this strategy, you should consider buying when buyers’ positions are being massively liquidated by stop losses. Respectively, when the price enters a zone with a lot of sellers’ stop losses, get ready to open a short position.

How do you know that a massive liquidation of positions by stop losses is happening?

It’s not difficult in the crypto market, where you can look at liquidation charts.

Chart with a liquidation indicator

This chart illustrates an idea for building a successful strategy that includes 2 steps:

1. Wait until a downtrend is established (shown by the arrow).

2. Open short positions when other participants’ short positions are being liquidated on a bullish candlestick (circled on the liquidation indicator).

This is the reason why earning from trend trading is sometimes difficult. And as a result of corrections, traders who are gaining profits are left out of the trend.

How to identify a liquidation NOT in cryptocurrencies?

For example, by round levels. Note that in the above example, liquidations happened after the price broke a psychological level of $70,000, and psychological levels work in all markets.

Another option is to use the Delta indicator and common logic.

Look at this example from the S&P-500 futures market:

S&P-500 futures market

The numbers show:

1. An established downtrend.

2. Buys suddenly surge. What does it mean?

3. It presumably indicates the triggering of stop losses above the preceding high, which was noticed by too many participants. That is why many traders placed their stop losses there.

So, the first signs of a price decline after the green Delta surge could mean that the liquidation is over and the market is ready to continue moving down.

Testing the Value Area

As you know, the market has 2 states:

• Flat. It’s when buyers and sellers agree that the current price reflects an asset’s fair value.

• Trend. It’s when either supply or demand is weak.

If you use a profile indicator, it will form a Gaussian distribution when the market is flat. And when there is a trend, the profile will be narrow.

The transition from a trend to a balance is an interesting moment that gives you a chance to open a position.

An example of BNB/USDT:

Two interim balance stages in an uptrend

The numbers show:

1. There was a temporary balance noticeable by a bulge in the profile, where BNB price was equally influenced by buyers and sellers. But then the balance was tilted upwards.

2. After a steep rise, a second balance formed, also noticeable by a bulge in the profile, indicating a new configuration of the opinions of buyers and sellers.

Value Area is a zone that encompasses most trades within a selected balance period. Practice shows that the Value Area Low – the lower boundary of the price zone (shown by the arrow) – can be a good entry point in terms of the risk/reward ratio if the preceding trend continues.

Parallel Channels

Parallel Channels are a simple, but effective tool. Here is how they can be used to build a successful trend trading strategy:

S&P-500 futures market

Suppose we have an uptrend where the price rises from point 1 to point 2. The trend channels are shown by the black lines.

Then, there is a pullback to point 3 – the lower boundary of the parallel channel – from where the price continues rising. It happens frequently because the price drop to point 3, as I see it, is equally unfavorable for both buyers and sellers:

1. the buyers, who assessed the 1→2 growth as positive, saw that their positions became either losing or significantly less profitable;

2. the sellers, who decided to go short when they saw the 2→3 descent, couldn’t make enough profit from the descent.

Disappointment befalls both parties when the market reverses at point 3, and this is why it can be a rational trading strategy. I know it from experience.

Cup with Handle

Thomas Bulkowski, an internationally known expert on patterns, believes that the Cup with Handle pattern has a high probability of success. According to his calculations, the price goes below the breakeven level in only 5% of cases. It was tested on 913 stock market setups.

Cup with Handle description

Cup with Handle is one of the patterns I do NOT take skeptically. I think it makes sense and can be used as a basis of a successful trend trading strategy.

For example:

Day chart of NVDA stock price

The numbers show:

1. An uptrend that stopped at a psychological mark of $500 per share.

2. Formation of a cup.

3. Formation of a handle.

As a rule – and in this case as well – the handle pattern aims to send as many traders as possible in the wrong direction. While a downward impulse can start quickly, it also ends quickly because the market lacks active sellers, thereby showing its readiness to break resistance.

Rounding Top

This is another pattern that confirms its effectiveness, according to Bulkowski’s research. The price drops lower than the buy level in only 9% of cases.

Rounding Top pattern

This pattern matters to me because I clearly see a lot of traders get on the wrong side of the market.

Here is an example from 2023-2024:

QQQ price chart, ETFs on technology stocks

The numbers show:

1. An uptrend caused by AI-related excitement.

2. Rounding Top pattern.

3. Pattern breakout.

When a rounding top is forming, many moving averages and MACD - like indicators give bearish interpretations. Having seen a series of lower lows, investors start doubting that the uptrend is still relevant and may decide to close their long positions.

However, a rounding line breakout will prove them wrong. Note that as the breakout forms (3), the price opens with gaps and does not provide a psychologically convenient moment to enter a long trade again.