Back to website
TD Sequential: A Comprehensive Guide for Traders
3 mins read

A Comprehensive Guide to TheSTRAT: Trading Strategy for the Modern Trader

Introduction

TheSTRAT, a niche yet popular trading strategy, was developed by Rob Smith over his 30-year career in the financial markets. The method is praised for its objectivity and systematic approach, while its complexity and unique perspective make it less widely understood. TheSTRAT is a multi-timeframe strategy that focuses on three primary components: Inside Bars, Directional Bars, and Outside Bars. The approach also emphasizes several key principles, including Full Time Frame Continuity, Broadening Formations, and the significance of Inside Bars.

Understanding the Components of TheSTRAT

To calculate the three primary components of TheSTRAT, traders must identify the following:

  1. Inside Bars – These occur when the current candle is contained completely within the prior candle. Inside Bars are consolidation candles, and serve as a critical decision point when the market reaches equilibrium and must determine the immediate future direction of prices.
  2. Directional Bars – Directional Bars take place when the current candle takes out one side of the prior candle.
  3. Outside Bars – Outside Bars happen when the current candle takes out both sides of the prior candle.

Interpretation of TheSTRAT

TheSTRAT patterns can be interpreted as indicators of potential trading opportunities, market equilibrium, or trend reversals. These patterns offer insights into price movements and market structure, providing traders with a more comprehensive understanding of market behavior.

How to Use TheSTRAT in Trading

The Strat
  1. Identify the type of bar: Determine whether the current candle is an Inside Bar, Directional Bar, or Outside Bar.
  2. Analyze multiple timeframes: Examine price direction across various timeframes to identify Full-Time Frame Continuity.
  3. Look for Broadening Formations: Observe the emergence of Directional Bars and Outside Bars, which create Broadening Formations leading to reversals or expansions.
  4. Identify TheSTRAT patterns: Some of the common patterns include:
    • 1-2D Inside Break
    • 1-2U-2D Inside Reversal
    • 1-3-1-2D Volatility Expansion
    • 2D-2D Continuation
    • 2U-2D Reversal
    • 3-2D Range Expansion Continuation
    • 3-2U-2D Broadening Reversal

For a more comprehensive list of patterns and a detailed explanation, you can refer to TrendSpider’s help article.

The Appeal of TheSTRAT

While TheSTRAT may appear complicated to some, it is the method’s systematic and objective approach that attracts traders. By removing subjectivity from trading decisions, TheSTRAT allows traders to focus on the mechanics of the market and make informed decisions based on patterns and principles. This video How to Use TheStrat in Your Trading provides an in-depth look at how one trader utilizes this style of trading.

Advantages of TheSTRAT

  1. Full Time Frame Continuity: Price direction is best assessed by looking at multiple timeframes rather than relying on moving averages or other lagging indicators. Full Time Frame Continuity occurs when all time frames point in the same direction, providing a more reliable assessment of the market’s direction. The most common time frames to utilize when looking for full time frame continuity are the 1 hour, daily, weekly, and monthly.
  2. Comprehensive: TheSTRAT covers numerous reversal, expansion, and continuation patterns, providing traders with a wide range of potential trading opportunities.

Limitations of TheSTRAT

  1. Complexity: TheSTRAT’s multiple patterns and timeframes can be challenging for beginners to understand and apply effectively.
  2. No guarantee of success: Like all trading strategies, TheSTRAT does not guarantee profitable trades or eliminate the risk of loss.
  3. Requires additional analysis: To maximize the effectiveness of TheSTRAT, traders should use the patterns in conjunction with other technical analysis tools and risk management techniques.

The Bottom Line

TheSTRAT, developed by Rob Smith, offers a unique, objective, and systematic approach to trading by focusing on Inside Bars, Directional Bars, Outside Bars, and Full Time Frame Continuity. Despite its complexity, the method has gained popularity among traders who appreciate its structured perspective on the markets.

By mastering TheSTRAT, traders can tap into a powerful toolkit for identifying trading opportunities and making more informed decisions in the financial markets. However, it is essential to remember that no single strategy guarantees success, and traders should continually strive to improve their skills, knowledge, and risk management techniques to enhance their overall trading performance.

Related:

  • Moving Averages

    Introduction to Moving Averages 

    Moving averages are one of the financial industry’s most widely used technical analysis tools. Essentially, a moving average is a calculation used to analyze the average price of an asset over a given period. This calculation is based on a certain number of past prices that are averaged to provide an indication of the direction …
    Introduction to Moving Averages
  • Technical Indicators

    Demystifying Technical Indicators: Understanding the Role of Technical Indicators in Trading 

    Introduction to Technical Indicators Purpose of Technical Indicators in Trading Technical indicators are essential tools for traders to help them better understand price movements, trends, and potential trading opportunities. They are mathematical calculations based on historical price data, volume, and/or other factors that are used to forecast future price movements. The Development of Technical Indicators …
    Demystifying Technical Indicators: Understanding the Role of Technical Indicators in Trading
TD Sequential: A Comprehensive Guide for Traders