Trading strategy: HOLP (buy signals)

Description

The HOLP strategy was developed by trader-author John F. Carter in his book 'Mastering the trade: proven techniques for profiting from intraday and swing trading set ups' (ISBN 0-07-145958-8). The strategy, which gives buy signals, is a reversal strategy. Reversal strategies try to determine the point in time when a trend reverses direction. In his book John F. Carter is actually skeptical of taking a position against the trend, quoting classics like "never catch a falling knife" (buy a steep sell off) and "never step in front of a train" (short sell a strong market). Given his skepticism he decides to base his strategy on the one single factor which he deems relevant: the market price.

   
Suitable for : Market indices (FTSE, DAX, AEX ...)
: Forex (EUR/USD, GBP/USD …)
: Commodities (oil, gold…)
: Shares
Instruments : Futures, CFDs and Forex
Trading type : Swing and day trading
Trading tempo : Depends on the timeframe
The strategy : Video
Using NanoTrader Full : Manual or semi-automated

 

The strategy in detail

HOLP is an acronym for "High Of the Low Period". It is a difficult name for a simple strategy. These are the criteria which generate a buy signal.

   

1: Find a close which is a 20-period low.

2: Identify the bar with the lowest low over these 20 periods. This is usually the last bar but not always.

3: Identify the high point of the bar with the lowest low. Buy a long position after the first close above this high.

John F. Carter uses the strategy for all financial instruments. He generally trades it on the basis of a day chart but the strategy is valid for all timeframes, including timeframes such as 60’ or 30’ for intraday plays.

When to open a position?

After the first close above the high of the bar with the lowest low occurs a long position is opened.

  This example shows the 20-period low. The buy signal (large green triangle) is executed at the start of the day after the first market close (little green triangle) above the high of the candle with the lowest low.

When to close a position?

The HOLP strategy uses a stop. It does not use a profit target.

   

1: Initially the stop is the low of the bar with the lowest low.

2: If the position is still open two periods later the stop changes to a trailing stop with level always the low of two bars back.

Attention
: The level of the trailing stop is the low of two candles back. As a consequence the level can go down sometimes. Although not dramatic this is against the general rule of trading to never replace a safer stop with a less safe stop.

Attention
: The HOLP strategy has a mirror strategy called LOHP. The LOHP strategy gives short sell signals. Backtesting reveals that both strategies are very sensitive to the main, long term market trend. So only apply LOHP (short signals) when the market trend is down and, only apply HOLP (buy signals) when the market is up.

The below screenshots illustrate the good results that can be obtained with these strategies on the condition that the right strategy is applied in function of the main market trend.

 

This screenshot shows the HOLP strategy applied during a bull market. The result is good.



 

This screenshot shows the LOHP strategy applied during the same bull market. The result is not good.



 

This screenshot shows the HOLP strategy applied during a bear market. The result is not good.



 

This screenshot shows the LOHP strategy applied during the same bear market. The results is good.

 

Conclusion

The HOLP strategy can be used for swing trading and day trading. It was developed by trader-author John F. Carter in his book 'Mastering the trade: proven techniques for profiting from intraday and swing trading set ups'. The strategy can be applied to all financial instruments and gives only buy signals. John F. Carter also developed a mirror strategy for short sell signals. It is called the LOHP strategy. These strategies seem to give good results but only when the right strategy is applied to the right long term market trend. HOLP when the trend is up. LOHP when the trend is down. The strategies are valid in all timeframes. John F. Carter tends to use it on day charts.

Practical implementation

In NanoTrader Full follow these steps:
  • Choose the instrument you wish to trade.

  • Open a chart with the template study "WHS HOLP".

  • Semi-automated trading? Simply activate the TradeGuard+AutoOrder or the AutoOrder function.