The popularity of indicator-free strategies is growing every day, because any indicator is based on price data and, as a result, will lag behind. Often, when adding several indicators, you have to delve into and monitor whether their signals do not contradict each other.
The strategy called “Jarroo” involves simple trading strictly by levels. This is where the trader gets rid of the daily tracking of many indicators. In this article, we will consider the principles of working with this interesting and not quite usual strategy.
Description of the Jarroo trading strategy
The Jarroo trading method belongs to the Price Action strategy. The trader’s job here comes down to finding clear levels according to certain rules on the daily charts of currency pairs.
Whether it is support or resistance, either of these levels will eventually be broken by bulls or bears. There is an assumption that when a strong level is broken through, the price continues to move in the direction of this breakout. According to Jarroo’s strategy, we will be interested in a retest of this level.
Working on a large timeframe will allow you not to miss a signal, moreover, you can use pending orders and check them no more than once a day. For this strategy, there are also no restrictions on the use of currency pairs – you can work with any available one. This is another advantage of Jarroo, because every trader prefers certain instruments.
Before getting started, it is important to learn the terms traders use when working with Jarroo.
Swing – local accumulations of highs and lows during price movement. On the chart, such levels may look like a kind of reversals that will be visible to the naked eye. Swings can also be the maximum or minimum values of the price on the chart.
HCR (Highest Close of Resistance) – represents a resistance that needs to be built not by shadows, but only by candlestick bodies. Prices do not close above this level.
LCS (Lowest Close of Support) – this is support, below which prices do not fall. It is also built along the body of the candle, we discard the tails.
PBT & CA (Price Breaks Through & Closes Above) – a situation when the price breaks through the resistance level, and the bulls manage to gain a foothold above this level.
PBT & CB (Price Breaks Through & Closes Below) – a situation when the price breaks through the support level, and the bears manage to gain a foothold below this level.
DCC (Daily Close Confirmation) – level breakout confirmation signal. As a rule, it is formed within the candlestick, on which a retest of the broken level takes place.
Perhaps the names look peculiar, and one could simplify them, but later studying and trading on the strategy, the terms are quickly remembered.
How to build levels according to the Jarroo strategy?
Traders build levels in different ways: someone takes into account only the candlestick bodies, someone builds on the shadows. Working on the Jarroo strategy suggests its own version of the search for levels:
- As noted above, when using the Jarroo strategy, levels are built only by the body of the candles; shadows, whatever they may be, are not taken into account when building.
- The trader must find the swings on the chart on his own. It is important to evaluate the location of the candles, it is desirable that there are several of them during the level test. This is a subjective factor, but with experience it will become easier to find the levels.
- If there are doubts about the indicated levels, then these are no longer swings, because they should be visible on the charts with the naked eye.
How to make a deal using the Jarroo strategy?
To open positions according to the strategy, only two simple conditions are required:
- Breakout of the support or resistance level, after which PBT & CA or PBT & CB are formed.
- Breakout confirmation. For this, we expect the formation of DCC: after the breakout, the level is retested at the next candlestick. In order to consider the level breakout as true, the price must not return for it.
As soon as these two conditions are met by the market, we proceed to placing a Buy Limit pending order to buy from the broken resistance level or a Sell Limit order to sell after the support level is broken.
Stop Loss for the strategy is placed beyond the high or low of the candlestick, where the level was broken. If the breakout candlestick is too close to the level, then the Stop Loss is placed behind the previous candlestick. In the case when the candle is too large during the breakout, Stop Loss can be set a little further than the level.
To set Take Profit, you can use the closest levels on the price chart. The second option is placing Take Profit 2 or 3 times larger than the Stop Loss size. Do not forget about the rules of money management: in each transaction we risk no more than 1-2% of it.
Example of a buy trade
Let’s consider an example of buying using the Jarroo strategy on the EUR / USD chart.
As you can see, there was a pronounced resistance level at 1.1990. After several tests of this level from below, an upward breakout occurs.
At the next candlestick, the price does not fall below the level, so we can talk about a true breakout.
We place a pending order Buy Limit at 1.1990, Stop Loss at 1.1930 and Take Profit at 1.2090. After the next test of the level, the price bounces upwards and continues to rise to our target.
Example of a sell deal
Let’s consider an example of selling according to the Jarroo strategy on the NZD / USD pair chart.
As you can see, there was a clear support level of 0.7140. At some point, this level is broken down.
On the next candlestick, this level was tested, but the price could not rise higher, thus we get a true breakout of the level.
We place a pending Sell Limit order at 0.7140, Stop Loss at 0.7215 and Take Profit at 0.6945: this is where the next support area is located. As you can see, after the next test of the level, the price falls down to the target.
Many traders point out that the Jarroo strategy is a simplified version of Price Action. Here you do not need to remember many patterns, but it is enough to learn how to find quality levels on daily charts of currency pairs.
Due to trading on a large timeframe, you do not need to be chained to the monitor screen for the entire trading day, and after the breakout of the level, work is carried out using pending orders, which is also very convenient. A small disadvantage of the work can be relatively large Stop Losses, which need to be hidden behind the highs or lows of the candles.
In general, the Jarroo strategy offers ready-made rules of work for a trader, all that remains is to trade strictly according to them and not forget about the possible risks.