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This daily trading pattern has made my trading unbelievably simple.

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This daily trading pattern has made my trading unbelievably simple.

It takes advantage of the first two and a half hours of the market open.

It helps me to understand 1.

When to take a trade.

2. The level of where to take a trade.

3. And most importantly, where the market is heading next.

After having traded this strategy for years and teaching it to hundreds of other traders,

I can confidently say that this strategy is changing the way

that people trade in a profound way while still being stupidly simple.

It's called the break and bounce strategy

and in today's video I will explain this daily pattern in three simple steps

and then I will take that process

and I will trade it in a live market so that you know how to apply it.

My name is Karl and I've been trading for 20 years.

This is a trading strategy that I've been using a lot recently

and in today's video we'll be going over how we can use this strategy on a consistent basis in our trading.

So these three steps are done on three different time frames.

One time frame per step.

The first step is done on a daily time frame.

The second step is done on the 15 minute time frame.

and the third step is done on the five minute time frame.

So we're not looking at plenty of indicators here.

We will actually not use a single indicator.

Instead we will go down time frame by time frame and then make the trade.

So the first step is to open whatever asset you are trading on a daily chart.

For this example I'm going to use Netflix but it works with any asset.

Just make sure it's on the daily chart.

This is two days ago.

So what we do is take our box drawing tool and we draw a box from the high of the day,

so the very top of this week,

to the low of the day,

so the very bottom of this week,

and then we extend it one day into the future.

And that's step one.

So simple, right?

The daily candle is the blueprint for this strategy and it's

so important because there's liquidity resting above your previous day high and there's liquidity resting below the previous day's low.

This is the level where the strongest buyer got in yesterday

and this is the level where the strongest seller got in yesterday.

What's great is that there's no bias in this strategy.

We are simply going to enter the market at these two key levels and we're going to do it mechanically,

meaning that we can't trade this strategy the wrong way.

Either we get the signal or we don't get a signal.

There is no interpretation or emotions involved with this.

We will just execute according to the rules,

the rules that I will go through with you now.

So we don't have to guess if the price is going higher or if it's going lower.

We're just going to use the box

and we are going to enter a trade when we get a reaction at the two key levels.

It's going to give us a clear picture of where the market wants to head.

If we break above we are likely to head higher.

If we break below, we are likely to head lower.

And not only do we have a probable direction of the market,

we can also use this box to set our targets and our stop losses.

And this is why this daily pattern is so powerful and effective.

Now, before we go into the second step,

let me show you some proof that this strategy is indeed working.

So about nine months ago,

I actually coded a trading algorithm out of this strategy after having traded it manually for years.

This is how it has performed since then.

It has a win rate of 70% and it has a profit factor of 1.6.

So this is real live results of my algorithm,

which is trading this strategy in this exact three-step process.

I suggest that you start trading this strategy manually so that you understand it.

But if you want to start it automatically,

I'm actually giving away the code for free.

There's a link in the description.

and in return I'm going to ask you to like the video and to subscribe to the channel.

I appreciate it.

Okay, so let's go to step two which is a crucial step

and this step is to identify when we have a breakout from the range that we boxed in in step one.

And what we are looking for is either a breakout above the high level or a breakout below the low level.

And the reason that this strategy is called the break

and bounce is because what usually happens is that

if the price breaks out of the level it will usually retest the breakout level

and then bounce on that level back up into the direction of the breakout.

So in this step we only focus on this one thing identifying

if we have a breakout and we do this on the 15 minute time frame.

So switch your chart to the 15 minute time frame.

Okay so here's the box that we drew in in step one but this is with 15 minute candles.

So what you want to see here is a push of the price above the high for a continuation towards the upside.

Or we want to see a push of the price below the low for a continuation towards the downside.

So the way we decide if there is a breakout

or not is if we have a close of the 50 minute candle above the high level.

Or if we have a close of the 50 minute candle below the low level.

So we don't just settle for the price moving above the level for a minute.

we want a full 15 minute candle close above the level or a 15 minute candle close below the low level.

So we just need to wait.

So let's play this out.

This is March 31st and the day range that we boxed in was March 30th.

Okay we open up at the middle of previous day's range with a gap

and the price starts going up

and it's actually going up above the range in this first opening candle

but remember this isn't a confirmed breakout we need to wait for the candle to close

so the price is going down again and it closes within the range meaning

that we don't have a confirmed breakout yet in this next candle the price keeps going up

and we actually do get a close above the high

which means that we now have a confirmed breakout

and that's all for step two

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which also was pretty easy right we don't use any indicators

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we don't use any fancy complex setups we're just waiting for that 15 minute candle close above or below the range.

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Now let's move on to the further last step

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which is to make the perfect entry for what usually comes after this

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which is a retest of this level and a bounce.

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So our levels are drawn in that is step one we have

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that 15 minute candle close above our previous day's high that's step two

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and this step we do on the five minute time frame.

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so we switch the chart to the five minute time frame now from here what we need

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which is the most important part of this video we need

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one out of two types of candles to appear at this key level

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and I say it's the most important part because

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if none of these candles appear then it's not ready to be reversed

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because that movement could continue back into the range

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so we want one of these two candles to appear at

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this level also remember we will only take the trade

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if this happens within the first two and a half hours of the market open.

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If that doesn't happen the opportunity is lost and we will not take the trade.

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So if you know about reversal candlesticks

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or have watched any of my previous videos you already know what the two types of candles are.

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The two types of candles that I'm going to be looking for are either the hammer

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or the inverted hammer candle or the bullish or bearish engulfing candle.

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And let me explain why these two candles are important and must be used in this trading setup.

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Let's start with the hammer candle to the long side.

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This must come after a clear red negative moment.

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The confirmation comes from within the wick itself, right here.

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The wick represents that the largest buyer took advantage of this liquidity and that the institutions bought into that weakness.

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And I've said this in past videos that you need to think about it this way,

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that if someone with that amount of buying power it's going to step in there and buy this dip.

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It's not going to go lower in most cases.

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And that's where the edge is because they're too big,

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they are too strong and they have announced their intentions and most likely the price will go higher from here.

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Not all the time but in most cases it will.

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So the entry is going to be very simple.

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You're going to wait for the break of this five minute hammer candle here

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and the entry will be right here and the stop loss would be set at the low.

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The inverted hammer would be something that comes after a clear green positive movement.

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You would have the wick coming from the top.

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Again, the confirmation comes from within the wick itself right here.

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The entry would be at the break of the candle and we would set the stop loss slightly above the high.

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Now the engulfing candles have the same exact significance but they look different.

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They're called engulfing because this large candle here engulfs the previous smaller candle.

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Meaning that the low of the candle is lower than the previous candle's low

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and that the high of the candle is higher than the previous candle's high.

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So fully engulfing the previous smaller candle.

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For engulfing candles though I like to set the entry already at the high of the previous candle

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and not wait until the engulfing candle closes.

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So for the bullish engulfing candle I would set my

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long entry here at the high of this red candle

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and I would place the stop loss slightly below the low of the engulfing candle

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and for bearish engulfing candles we enter the short trade already at the low of the previous green candle

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and place the stop loss slightly above the high so

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if you didn't follow all of this don't worry we're going

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to go through this step by step now let's repay this again step one we go to

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that daily time frame and the first thing

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that we do in the morning is to box in yesterday's range and we extend it until today.

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Step two we go to the 15 minute time frame

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and we identify that we have a candle close outside

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that box and step three we go to that five minute time frame

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and we wait for a hammer candle or a engulfing candle at that high low level.

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Okay so let's see if we get that retest,

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if we get that reversal candle and if we get that bounce.

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So the price actually rapidly retest the level here in the next five minute candle

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so we're waiting for the reversal candlestick formation somewhere around this

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level in this next candle price goes up again no reversal candlesticks yet

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and the next two candles were green as well price goes up again

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but without any reversal candles okay here we actually get a hammer candlestick

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but remember we only enter on hammer candles

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if it was preceded by a clear negative movement and not when it's looking like this.

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Okay the price goes down again for a third retest.

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Okay around here 90 minutes after the market opened you should see what I'm seeing.

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We are once again around this breakout level.

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We've got a low of this candle

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that is lower than the previous candle meaning that

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if the price goes up from here to the high of

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the previous candle we could very well have a bullish engulfing candle.

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So the entry would be straightforward.

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We would enter the long trade at the high of the previous candle here

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and we would set the stop loss below the low of the candle

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and I would set a target profit to three times the stop loss.

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Okay so our trade is set let's see how it plays out.

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So the price continues up and we enter the trade we reach our target profit here already 15 minutes later.

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In this trade we entered at 94.51 we put the stop loss at 94.34 and we set the target profit at 9502.

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So this trade had a 17 point stop loss and we made a 51 points win,

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which is pretty good, right?

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And this isn't cherry picked.

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So if we look back at previous times that we had this breakout set up,

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the last time was March 26th and we had this pattern here too.

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We had a positive breakout.

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We reversed down again for a retest and then we bounced up higher.

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March 23rd, we have this pattern here too.

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A positive breakout, a retest,

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a hammer candle and then bouncing up.

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Of course, there are losses too.

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If we go back to march 9th we got a bearish engulfing candle here

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but it's false and the price actually goes back into the range again

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so this strategy doesn't have a 100 win rate

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but almost every time that the price breaks out like this it will retest the breakout level

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and then it will bounce

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so this breakup setup doesn't happen every day sometimes we trade within the range for the full day.

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Sometimes the breakout happens but it's not within the first two and a half hours.

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Sometimes the breakout happens within the two and a half hours

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but we don't get a reversal candle and this means

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that we only get this set up two or three times per month per stock.

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So if you want to trade this strategy daily that means

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that you need to scan a number of different stocks every morning to find suitable breakout.

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Now let me show you how to trading slide it's already after lunch so I will be back tomorrow.

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Okay

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so I'm back it's actually been a few days since you

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saw me last time I didn't get the trade set up the next morning but hopefully we will get it today.

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So the market opens in 10 minutes

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and we can start by doing step one which is to box in yesterday's trading range.

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So we take our box drawing tool we draw a box from the high to the low

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and we extend it until today.

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So that's step one again we are on Netflix.

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So the high level is 97.19.

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The low level is at 94.27.

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Let's go to the 15 minute time frame and let's wait for the market open.

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Okay here we go.

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We opened around the middle of yesterday's range and we are going up and then down.

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Okay now finally here you should see what I see.

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So we have a 15 minute candle close here above the range around 75 minutes after the market opened.

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So that's step two.

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We have a confirmed breakout.

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And step three is to dial in that perfect trade.

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So we go into the five minute time frame and we wait for a hammer or a bullish engulfing candlestick.

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And we wait for it to happen around this level.

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If this was a negative breakout,

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we would instead wait for a inverted hammer or a bearish engulfing candlestick.

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And we would wait for it to happen around the low level.

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So here, look, we have something that might turn into a hammer.

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The wick exactly touches this level.

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So if the candle closes like this,

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then we will enter immediately at the candle close.

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Okay, so there is close it's definitely a hammer so I will enter a long position.

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I will set the stop loss a bit under this level here.

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I'll set it at 97.15 which means that it's a 39 cents stop loss

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and I want to set a target profit that is twice that.

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So that's 78 cents which means that the target profits should be set at 98.32

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and that's step three let's see how it plays out this

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is taking longer than usual we are still in trade we're still in latent gain

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but it's been in trade for almost two hours now by the way i forgot to say this

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but if we are still in position by the time the market closes we want to manually close the trade.

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Okay this is taking time finally.

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So we reached our target profit here.

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The average trade duration is usually like one or two hours so this is unusually long.

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Again I would have closed the trade at the closing if we hadn't reached our target profit here.

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Anyway we made some money,

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we made a good trade,

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we followed the steps and that's all we need to do.

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All right guys, I hope you learned something today.

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Please make sure to do your own due diligence and your own backtests before running any of these strategies.

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Historic results are no guarantee for future results.

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And with that being said,

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I hope you guys enjoyed this video.

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If you did enjoy it,

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please give it a thumbs up and subscribe to the channel.

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And I will see you again soon for a brand new strategy.

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Bye.

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