Learn the unidirectional trading strategy that will allow traders to focus only on one side of the market (up or down). You want to read the unidirectional trade strategy review if you want to identify one-sided trading moves. Additionally, you’ll learn how to capture unidirectional intraday trading moves with one simple twist.
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Most traders are only familiarized with the concepts of directional trading and non-directional trading. Directional trading is probably one of the most widely used strategies to buy and sell securities (stocks, bonds, commodities, currencies, or cryptocurrencies). With directional trading strategies, you have to make a bet whether you think the market will go up or down.
On the other side of the equation, we have non-directional trading strategies that don’t require predicting the market direction. However, non-directional trading is bound on the prevailing level of volatility and the expiration time of an option.
While non-directional trading usually includes using options contracts (an example of a non-directional trading strategy is the Straddle Options Strategy) it can also be implemented in range-bound markets through something called Pairs Trading Strategy.
But what if we told you:
There is a third method aka the unidirectional trading strategy.
If you want an edge to increase your trading gains without focusing too much on complex trading methods, the unidirectional trading model will fit you well.
Let’s start by explaining unidirectional trading, how it works, and outline some advantages that can bring to the table.
What is Unidirectional Trading?
Unidirectional trading is a currency exchange investment strategy that operates in a single direction be it long (buy) or short (sell). The main idea behind the unidirectional trade model is to get you focused only on one side of the market.
For example, the buy and hold investment strategy is a type of unidirectional trading strategy that is applied by only buying stocks for the long term.
Note* Buy-and-hold investors are only limited to buy stocks and when you hold a position for a long time, you’re essentially using a positional trading strategy.
On the other hand, the recession trading strategies are another type of unidirectional trade strategy that is applied only by selling stocks in a bear market.
Check out our guide on how to sell stocks and how to trade stocks in a recession.
Let’s see what’s so special about unidirectional intraday trading.
Why Use Unidirectional Intraday Trading?
First and foremost unidirectional trading is a unique way to filter out bad trades.
Everyone wants to have a trading edge, but when you try to be all over the place by buying stocks and then selling stocks from other sectors, it can be quite stressful. Here's a guide on how to get that trading edge.
The market moves up and down all the time, but in the grand scheme, they will follow a major directional bias or trend. A real problem; traders have is that they try to capture both up and downswings in the price, which can be a costly approach.
The sensible way of trading is to pick one direction, preferably the direction of the major trend, and only stick to that side of the market. You can achieve this by understanding the direction indicator formula.
Here are 3 other major advantages of the unidirectional trading strategy:
- An easy to implement trading strategy.
- An efficient way to keep you focused on the market.
- Better control of your emotions.
Let’s see how unidirectional trading works.
How Unidirectional Intraday Works?
To better understand the mechanics behind who unidirectional trading works, let’s outline a common price behavior:
Have you noticed that in intraday trading the price has the tendency to revisit the same level many times?
I’m sure you have gone through one of these situations:
You pick up an appropriate level to buy and place a protective stop-loss strategy, but your stop loss gets triggered.
Now, the market goes lower and it is “signaling” a bearish trend.
Again, you pick a suitable level to sell, place your protective loss, but the market turns against your positions and your stop loss gets triggered again.
This time, after the market took you out, the price goes beyond the level you initially bought and continues to move in the direction of your first trade.
But, you’re left out bleeding and mentally drained trying to figure out what just happened.
No shame in admitting you have gone through one of these trade situations, most traders, at one point have done this type of mistake.
The moral of the story is that your first trade idea would have worked out if:
- You would have used a wider stop loss.
- Or, if you re-entered another long position trading at an improved price than the first trade.
You don’t just randomly buy; we supposed you have a trading methodology with definitive rules that tells you when to buy or sell.
Here is the thing:
Using a wider stop loss can lead to big losses and it can be extremely costly to your bottom line.
The alternative is the unidirectional intraday trading strategy, meaning to carry on with only placing trades in one direction.
Hopefully, you can see how straightforward the process is.
Below, we’re going to let you read our unidirectional trade strategy review along with some trading rules that can serve you as a foundation for something bigger.
Unidirectional Trade Strategy Review
From the start, we want to make it clear that the unidirectional trade strategy is an unorthodox trading technique. If you want to learn the foundation of how to trade in one direction we have your back covered.
We’ve put some considerable thinking and even more backtesting strategies into this.
The unidirectional trading strategy doesn’t require any level of forecasting the market direction or the trend. If you’re one of those traders who are always confused about establishing a directional bias, this trading strategy will suit your style.
Now, you might be thinking:
“How I’m going to make money trading the markets, without any attempt at trying to predict future price movements?”
That’s a good question.
Here is how to profit without predicting the market:
One bit of trading wisdom I learned from professional traders is to not try to predict the future but to react and trade what is happening in the current moment.
Predicting vs. Reacting
When you try to predict where the market is going, it can be extremely costly if your forecast is wrong and you have real money on the line. More, predicting future trends is not as easy as it may sound as there are a lot of factors that can alter the market trends.
If the market momentum is on the upside, professional traders react to that piece of information and trade only on the buy-side because that’s where all the “easy” money is made.
The philosophy behind unidirectional trading is to sacrifice a little bit from the potential profits, in order to stack the odds on your side. When you break down the risks versus the reward, you can start seeing the benefits of reacting to the market price to book value.
Let’s break down step-by-step how trading in one direction can help you stay focused on the “right side of the market.”
Unidirectional Trade Strategy
The first step to start trading is to choose the right market to trade and the best time of the day to trade.
You chose a market and you stick with it until you master it.
If you’re a stock trader here is how to pick stocks for day trading: Steps to pick stocks for day trading.
For the purpose of his unidirectional trade strategy review, we’re going to stick with trading EUR/USD.
Moving forward, we’re going to lay down some rules to trade only in one direction.
Step #2: Only Buy if We Trade Above the Opening Price
We’re not going to predict which way to trade, but instead, we’re going to go along with the intraday momentum strategy.
What we mean by this is simple:
If the market price trades above the opening price, it’s an indication that the buyers are in control, so we want to go along with the flow of the market. The other alternative is to try to guess the market, which is a lot harder.
Note* conversely, if the price is below the opening price we only trade on the short side.
Check out, the EUR/USD chart below:
Since we’re trading within the forex market, we want to focus only on the major trading session like the London forex market and the New York sessions.
Moving forward, we’re going to share some simple trading rules for buying and selling currencies.
Step #3: Buy at the First Green Candle that closes above the Opening price
We need to clarify some rules:
If during the first hours of trading the market has spent most of its time above the opening price our bias for that day is up, and we only look to buy. Conversely, if during the first hours of trading the market has spent most of its time below the opening price our bias for that day is bearish and we only look to sell.
See the EUR/USD chart below:
When the next major trading session opens (i.e. The London session) we look for the first bullish candle that closes above the opening price to trigger our entry:
Here is the same EUR/USD chart zoomed in:
You can actually buy each time you see the price retesting and getting rejected from the opening price.
We’re going to use the same rules and buy at the first bullish candle that closes above the daily opening price.
See the EUR/USD chart below:
Now, you may be asking yourself:
“What if the market is already above the opening price?”
“How do we enter?”
Buy after each two consecutive bullish candles. Or, if you have a big bullish candle with its trading range bigger than the surrounding candles, you can go ahead and buy.
See the forex chart below:
Note, that this time around that trade didn’t work as planned, but we need to follow the rules, no matter what because in the long run all the small profits you’re going to make will add up.
Step #4: Take Profit Equals 2 times ATR
We are going to use the average true range (ATR) indicator which measures the price volatility. This will give us a more efficient way to pinpoint the dynamic exit price level.
As our profit target, we’re going to use the 14-period ATR applied to the 5-minute chart and multiply that by 2.
For example, if the ATR is 5 pips our take profit will be 2 x ATR, which is 10 pips.
See the chart below:
Here are some of the advantages that come with trading only in one direction:
- Trading along with the momentum.
- A big profit potential on strong trading days.
- Reduces risk and improves the risk-reward ratio.
Final Words – Unidirectional Trading Strategy
In summary, a unidirectional trading strategy is an easy-to-use approach that is a great way for novice traders to get their feet wet. Short-term traders are better off with our unidirectional intraday trading strategy because they can profit without predicting the market. Check out our guide on how to perform risk management for trading beginners.
The bottom line is that if you stay nimble and react to the current market price, you’re better than trying to forecast the market. When you’re tied to your predictions you’re blinded to what’s really going on in the market.
Keep it simple and trade in one direction!
Thank you for reading!
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