The Strat Lite [rdjxyz]

◆ OVERVIEW

The Strat Lite is a stripped down version of the Strat Assistant indicator by rickyzcarroll—focusing on visual simplicity and script performance. If you're new to The Strat, you may prefer the Strat Assistant as a learning aid.

◇ FEATURES REMOVED FROM THE ORIGINAL SCRIPT

• Candle Numbering & Up/Down Arrows
  
• Previous Week High & Low Lines
  
• Previous Day High & Low Lines
  
• Action Wick Percentage
  
• Actionable Signals Plot
  
• Strat Combo Plots
  
• Extensive Alerts
  

◇ FEATURES KEPT FROM THE ORIGINAL SCRIPT

• Full Timeframe Continuity
  
• Candle Coloring
  

◇ FEATURES ADDED TO THE ORIGINAL SCRIPT

• Failed 2 Down Classification
  
• Failed 2 Up Classification
  

◆ DETAILS

The Strat is a trading methodology developed by Rob Smith that offers an objective approach to trading by focusing on the 3 universal scenarios regarding candle behavior:

SCENARIO ONE

The 1 Bar - Inside Bar: A candle that doesn't take out the highs or the lows of the previous candle; aka consolidation.

These are shown as gray candles by default.

SCENARIO TWO

The 2 Bar - Directional Bar: A candle that takes out one side of the previous candle; aka trending (or at least attempting to trend).

SCENARIO THREE

The 3 Bar - Outside Bar: A candle that takes out both sides of the previous candle; aka broadening formation.

In addition to Rob's 3 universal scenarios, this indicator identifies two variations of 2 bars:

Failed 2 up: A candle that takes out the high of the previous candle but closes bearish.

Failed 2 down: A candle that takes out the low of the previous candle but closes bullish.

◆ SETTINGS

◇ INPUTS

FTC (FULL TIMEFRAME CONTINUITY)

• Show/hide FTC plots
  
• Offset FTC plots from current bar
  

◇ STYLE

STRAT COLORS

• Color 0 (Failed 2 Up) - Default is fuchsia
  
• Color 1 (Failed 2 Down) - Default is teal
  
• Color 2 (Inside 1) - Default is gray
  
• Color 3 (Outside 3) - Default is dark purple
  
• Color 4 (2 up) - Default is aqua
  
• Color 5 (2 down) - Default is white
  

◆ USAGE

It's recommended to use The Strat Lite with a top down analysis so you can find lower timeframe positions with higher timeframe context.

◇ TOP DOWN ANALYSIS

MONTHLY LEVELS

Starting on a monthly chart, the previous month's high and low are manually plotted.

WEEKLY LEVELS

Dropping down to a weekly chart, the previous week's high and low are manually plotted.

DAILY LEVELS

Dropping down to a daily chart, the previous day's high and low are manually plotted.

12H LEVELS

Dropping down to a 12h chart, the previous 12h's high and low are manually plotted.

ANALYSIS

The monthly low was broken, creating a lower low (aka a broadening formation), signalling potential exhaustion risk, which can be a catalyst for reversals. The daily candle that tested the monthly low closed as a Failed 2 Down—potentially an early sign of a reversal. With these 2 confluences, it's reasonable to expect the next daily candle to be a 2 Up. Now it's time to look for a lower timeframe entry.

◇ LOWER TIMEFRAME POSITION

HOURLY PRICE ACTION

Dropping down to an hourly chart, we're anticipating a 2 Up on the daily timeframe, so we're looking for a bullish pattern to enter a position long. I personally like the 6:00 AM UTC-5 hourly candle, as it's the midpoint of the day (for futures).

In this specific example, we see the opening gap was filled and there's a potential 2-1-2 bullish reversal set up.

At this point, price can either do one of 5 things:

• Form another 1 (inside) candle
  
• Form a 2 up (directional) candle
  
• Form a 2 down (directional) candle
  
• Form a 2 up, fail, and potentially flip to form a bearish 3 (outside) candle
  
• Form a 2 down, fail, and potentially flip to form a bullish 3 (outside) candle
  

Knowing the finite potential outcomes helps us set up our positions, manage them accordingly, and flip bias if needed.

POSITION SETUP

Here we can set up a position long AND short. To go long, we set a buy stop at the 1h high and stop loss just below the 50% level of the inside candle; to go short, we set a sell stop at 1h low and stop loss just above the 50% level of the inside candle.

If the short gets triggered first, we can wait for price to move in our favor before cancelling the buy order. If the short becomes a failed 2 down, potentially reversing to become a bullish 3, we can either wait for the stop loss to trigger and for the long position to trigger OR we can move the buy stop to our short stop loss and move the long stop loss to the low of the 1h candle.

POSITION REFINEMENT

For an even tighter risk-to-reward, we can drop to a lower timeframe and look for setups that would be an early trigger of the 1h entry. Just know, the lower you go the more noise there is—increasing risk of getting stopped out before the 1h trigger.

Above are 30m refined entries.

In this example, the long buy stop was triggered. It closed bullish, so the sell stop order can be cancelled.

◇ TARGETS & POSITION MANAGEMENT

TARGETS

These depend on whether you intend to scalp, day trade, or swing trade, but targets are typically the highs of previous candles (when bullish) and lows of previous candles (when bearish). It's advised to be cautious of swing pivots as there's a risk of exhaustion and reversal at these levels.

In this example, the nearest target was the previous 12h high and the next target was the previous day high; if you're a swing trader, you could target previous week's high and previous month's high.

POSITION MANAGEMENT

This largely depends on your risk tolerance, but it's common to either:

• Move stop loss slightly into profit
  
• Trail stop loss behind higher highs (bullish) or lower lows (bearish)
  
• Scale out of positions at potential pivot points, leaving a runner
  
• Scale into positions on pullbacks on the way to target
  

◆ WRAP UP

As demonstrated, The Strat Lite offers a stripped down version of the Strat Assistant—making it visually simple for more experienced Strat traders. By following a top-down approach with The Strat methodology, you can find high probability setups and manage risk with relative ease.

◆ DISCLAIMER

This indicator is a tool for visual analysis and is intended to assist traders who follow The Strat methodology. As with any trading methodology, there's no guarantee of profits; trading involves a high degree of risk and you could lose all of your invested capital. The example shown is of past performance and is not indicative of future results and does not constitute and should not be construed as investment advice. All trading decisions and investments made by you are at your own discretion and risk. Under no circumstances shall the author be liable for any direct, indirect, or incidental damages. You should only risk capital you can afford to lose.