Trading strategy: LOHP (short sell signals)

Description

The LOHP 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 sell 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 considers 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

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

   

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

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

3: Identify the low point of the bar with the highest high. Open a short sell position after the first close below this low.

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 below the low of the bar with the highest high occurs a short sell position is opened.

  This example shows the 20-period high. The short sell (large red triangle), however, takes place four days later, after the market closed (little red triangle) below the low of the candle with the highest high.

When to close a position?

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

   

1: Initially the stop is the high of the bar with the highest high.

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

Attention
: The level of the trailing stop is the high of two candles back. As a consequence the level can go up 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 LOHP strategy has a mirror strategy called HOLP. The HOLP strategy gives buy signals. Backtesting reveals that both strategies, are very sensitive to the main, long term market trend. So only apply LOHP (short sell signals) when the market trend is down and, only apply HOLP (buy signals) when the market 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 buy strategy applied during a bull market. The result is good.



 

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



 

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



 

This screenshot shows the LOHP short sell strategy applied during the same bear market. The result is good.

 

Conclusion

The LOHP 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 short sell signals. John F. Carter also developed a mirror strategy for buy signals. It is called the HOLP 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 LOHP".

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