Here are the key points from our video ‘The Duomo Method Thesis (Trading Strategy Base Layer)’ that you can use as a reference guide or ‘cheat sheet. The video is available on our YouTube channel and at the bottom of this article.
- We always say it is important to be able to sum up your strategy in a few paragraphs and understand logically what you are trying to achieve for your trading system.
- When you are deciding what you are trying to achieve with your strategy, it should involve a few layers, the top layer is your actual strategy and the base layer is your thesis of what the market is doing, your beliefs and how you will capitalise on this.
- This is our thesis, which is based upon our Duomo market theory, which is grounded in maths and physics.
- The market is full of what we refer to as ‘significant levels’ where there is a higher level of activity than other levels. Activity can either mean greater volume, leading to more movement or it can be that it’s a point where a size shift in activity happens e.g. a big move in one direction.
- The nature of significant levels causes them to attract and repel/reverse the price. This also means that the density of movement around the levels is usually higher.
- There are significant levels that we can see and some we can’t. For example, a significant level might be at a price point where there has been a reaction before, or it may be at a point in the chart where there is no previous information to use e.g. new highs or lows. So we have to find ways to identify them.
- Since we know the price is attracted and repelled to the significant level, we can use what we call Type 1 or Type 2 closes to identify the level is there. Since the price has used it as an important level, either touching that point as the maximum point in its movement or closing on that price level, means it is likely to have significance. This is not definite, but it’s likely. It increases our certainty.
- The type 1 or 2 closes also show failure at the level which allows us to assume there has been difficulty at that level in either direction and we can trade it potentially.
- The next objective is to use tools that have a high probability of actually identifying where a significant level is likely to be. Otherwise technically there are type 1 and 2 closes all over the chart. To do this, we have to use tools which are proven to display the characteristics of a significant level when the price interacts with it. This can be ones based on previous anchor points such as a swing high/low, or it can be something that is built from the Duomo market theory and creates levels that were previously not there.
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