SK-FX, a high accuracy trading strategy, is, perhaps, one of the most underestimated trading strategies of modern times.
In this post, I will describe main concepts and principles of SK-FX trading strategy. I will demonstrate how to apply this strategy, as well as the pattern of decision-making.
Have you ever thought about what an ideal trading strategy should be like? I have, and I have identified myself 5 main features of an ideal strategy.
1. It can be can be applied at any moment of time
2. It can be applied in any timeframe
3. It is equally efficient for any trading platform (stock market, forex, cryptocurrency)
4. There are no false signals
5. the signals are unambiguous and clear-cut
You will say, such a strategy is impossible and will be absolutely right; but there are strategies, incredibly close to perfection. This strategy was shared in public access by Sergey Kucher in 2009. Unfortunately, I have only recently learnt about this strategy. After one of my subscribers sent me an article with SK-FX description, I was rather skeptic about it. My curiosity has done its job, and I found the time to study it in detail. And I’m sorry not for a moment of it. SK-FX strategy includes almost all theoretical aspects, I spoke about in previous articles.
First of all, the strategy author emphasizes that the main traders’ enemy is uncertainty, as it is exactly what makes traders take unreasonable decisions and lose their money. Therefore, you should look for reasons in any price move. Everything, subject to logic, can be fit in a pattern, and the pattern can be developed into a system. If you don’t see any logic in ticker moves, stop trading until you find it. The next principle, SK-FX is based on, that market is a watching system.
It means, the market is driven by large participants, and so, their activities can be logically explained. The market is uncertain only for those, who don’t monitor large players’ activities and don’t understand their reasons. SK-FX suggests that the market is a self-regulated system with only one changing variable — supply/demand.
The large players’ impact changes this variable, which changes the market, and as a result, there are signals about the market imbalance, which finally allow the ticker to get back to its equilibrium level. The market always tends to the equilibrium level — demand and supply balance.
Another important idea, SK-FX strategy is based on, is that there is only one true price chart in the market, the monthly one. All the rest just indicate the last state of a longer timeframe.
One more SK-FX key principle is the principle of self-inclusion that fractal models (wave formations) feature. This drives to a conclusion that during a real trend reversal, in all shorter timeframes, there should also be a reversal pattern emerging. As the market always tends to supply and demand balance, then the level of any wave pattern completion is exactly the level of the market balance. This implies that the true support or resistance level is the level of supply and demand balance, rather than the price levels reached.
As SK-FX aims at providing accurate and clear signals, this strategy doesn’t apply wave analysis. Neither SK-FX suggests the concepts of support/ resistance levels in their classical sense.
SK-FX strategy accuracy is provided by the use of a multi timeframe, that is, the same instrument is analyzed simultaneously in 8–9 timeframes, from the monthly one to 1 minute. The strategy author calls this analysis method “All-round view”. As the self-scaling property, when added to the chart, creates additional analysis thwart, the author suggests moving the indicators for analysis to a separate window.
For example, look at the all-round view of BTCUSD pair from a month to 5 minutes below:
Advantages of all-round view:
- It is possible to find out the market situation at any point of time. Long retrospective doesn’t create additional interference in the chart;
- Due to the indicators self-scaling in a separate window, the time lag between the price move and the indicator signal is reduced;
- The reversal signals of longer timeframes can be easily spotted in shorter ones;
- Leading signals can be easily found and clearly defined;
- Visual correlation of different timeframes.
SK-FX strategy suggests making projections based on dynamic analysis.
Dynamic analysis is the combination of qualitative (analysis of market logic) and quantitative (analysis of the current processes) analysis. Dynamic indication is arranged with the use of highly sensitive indicators — oscillators and trend indicators, moving averages.
In general, SK-FX analysis looks like this
- In longer timeframes, the moment of trend reversal or correction is identified;
- In shorter timeframes, the entry/exit point with maximum profits is identified.
To find out the trend or the reversal, the strategy developer recommends using indicators, having maximum linear correlation with the price. The most linear trend indicators are suggested to be all moving averages; for oscillators, they are all indicators of MACD type. The key objective of the analysis is to identify the market imbalance relative to the equilibrium point. SK-FX implies that the market always tends to the dynamic balance level. In this regard, the first, a trader should do when making up their trading plan, is to find out the direction, the market deviates in form the equilibrium point at a given moment; and what level this point itself is.
As an example, I’m using BTCUSD monthly timeframe:
To identify the balance level of senior order, we use the monthly timeframe, where we add two moving averages:
- Short moving average — 5 bars
- Long moving average — 21 bars;
- Applied to close prices.
Currently, the long moving average is at the level of 5,453 USD, and so, our middle-term trading plan should consider the short positions with the target at the level of about 6,000 USD (the target should be adjusted to the indicator changes in the next month).
Similarly, the market deviation from the balance level is identified with the short and the long moving averages of MACD. In the chart above, you can see the example of this indicator drawing in the second window.
To demonstrate the dynamic analysis, I present the chart below:
In the daily chart on the left, we see a wide gap between the long and the short moving averages, which means the market strong deviation from the equilibrium price level. The short MACD is at the window top border, which also means a great overbought and a soon reversal. In 12-hour chart, watching the same situation in more details, we also see the disparity between two moving averages; and MACD is already indicating the divergence related to the last high. In 4-hour chart, the situation is similar to that in 12-hour one, only indicated by other bars on two-day scope. The reversal signals repeated in shorter timeframes suggest looking for short positions.
To do it, we need to look at shorter timeframes:
Going on our March case study, we analyze the hourly chart, studying the situation on March 5. Here, we see strong divergence (the chart on the left). To identify a perfect entry point, we have pasted the moving averages into the second window. The short MACD converging with the moving average at the window top border defines the high that must be followed by correction. In 15-minute chart, we see a similar signal of the short MACD converging with the moving average, which provides a point to open a position as accurately as possible.
As a result of this analysis, we pick a strong reversal momentum (see the chart below):
The exit point to fix the profits is identified in a similar way:
We wait until MACD reaches the window bottom border in the daily timeframe (see the chart on the left). We check for divergences in the shorter timeframes, and, with the converging points of moving averages and MACD in minute-charts, identify a perfect exit point with maximum profits (the charts in the middle and on the right).
In this post, I demonstrated a highly simplified version of SK-FX strategy, to outline its general principles. If you liked this article and you want to learn more about this wonderful strategy, please, do write in the comments, repost and put likes.
In my next post, I’m going write about SK-FX in more detail, namely about:
- jumps against the trend
- secrets of divergences
- phase signals
- phantom signals
- signals working out in longer timeframes
- detailed description of dynamic indication
- targets of trend moves
- all-round view of BTCUSD current situation and an accurate forecast
I wish you good luck and good profits!
Originally published at https://www.liteforex.com/blog/
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