Trading strategy: Range Projection

Description

The Range Projection trading strategy is a swing trading strategy. It has been developed by German trader-coach René Wolfram. Range Projection is a trend-reversal strategy. A trend-reversal strategy attempts to identify points in time when the trend is about to reverse. When a bullish trend is about to reverse a short sell position is opened. When a bearish trend is about to reverse a long position is opened.

The strategy in detail

The Range Projection strategy attempts to identify what it considers a clear trend. Uniquely it does not use technical indicators or (candlestick) patterns to identify a trend. The strategy simply looks for what it defines as a "big" candle. The definition of a "big" candle is the following: the absolute value of the open price minus the close price must be > than 1,5x the 15-period average true range (ATR). In addition the candle needs to be bigger than the candle preceding it and the candle following it. When a ‘big’ candle is detected the strategy colors the background of the chart blue.

In this example the strategy identified a "big" bullish candle (blue background).

The Range Projection strategy is applied on day charts.

When to open a position?

The Range Projection strategy is a trend-reversal strategy. A long position will be opened when a negative trend is about to become positive. A short sell position will be opened when a positive trend is about to become negative. The entry price for positions is calculated on the basis of the "big". candle.

A long position requires a big bearish candle. The buy signal (entry level) is the close of the big candle minus the body of the big candle.

In this example a "big" bearish candle appears (blue background). The entry level (green line) for a long position is the close of the big candle minus the body of the big candle.

As soon as the market price crosses below the entry level a long position is bought at the market price. The price does not need to close below the entry level.
A short sell position requires a big bullish candle. The short sell signal (entry level) is the close of the big candle plus the body of the big candle.

In this example a "big" bullish candle appears (blue background). The entry level (red line) for a short sell position is the close of the big candle plus the body of the big candle.

As soon as the market price crosses above the entry level a short position is sold at the market price. The price does not need to close above the entry level.

When to close a position?

The Range Projection strategy uses a profit target and a fixed stop. The profit target is 50% of the body of the big candle. The fixed stop is 2x the ATR calculated over 15 periods. NanoTrader Full users can change these values in the Designer dialog here:

This example shows a buy signal. When the market price crosses below the entry level a long position is opened (green triangle). The fixed stop (thin red line) and profit target (thin green line) appear. The position is sold with a profit when the market price reaches the profit target two days later.

This example shows a short sell signal. When the market price crosses above the entry level a short sell position is opened (red triangle). The fixed stop (thin red line) and profit target (thin green line) appear. The position is bought back with a profit when the market price reaches the profit target three days later.

Conclusion

The Range Projection Strategy is a swing trading strategy for stocks developed by German trader-coach René Wolfram. Although classified as a trend reversal strategy it appears that many of the trend reversals identified by the strategy are temporary in nature. They are not major trend reversals. However, the strategy’s profit targets are not over-ambitious making these temporary trend reversals suitable for a trade. The strategy is appropriate for stocks only. More active investors can experiment with shorter time frames such as hours or 30 minutes.

Practical implementation

In NanoTrader Full follow these steps:

• Choose the instrument you wish to trade.
• Open a chart with the template study "WHS Range Projection".
• Semi-automated trading? Simply activate the TradeGuard+AutoOrder or the AutoOrder function.