Break and Retrace - a trading methodology
HF Systems employ what I call "Break and Retrace" trading methodology. Having studied the inner workings of the financial markets over many years I came to the conclusion that many of the movements one would like to capitalise upon have tended to occur shortly after the formation of some kind of false breakout or market "trap" which is driven by a news related or chart based event. If one could identify the early signs that a trap had formed and waited patiently for the set-up, large profits could be amassed.
HF Systems have been designed to recognise the likely formation of a trap before generating entry orders which, if triggered, will take a position in the expectation of a pick up in stop-loss buying or selling. In the example below, an "event" has caused the market to break sharply lower - the Break - but for whatever reason the move was not sustained and a reversal gets underway - The Retrace. If the market returns to the Origin of the move which produced the Break a Trap has formed, and upward momentum often propels the market higher as "trapped" sellers exit losing short positions creating a trading opportunity.