HHLL Trading Strategy — What Is It?

Last Updated on August 25, 2022 by Oddmund Groette

There are certain trading strategies that you can trade based on price action alone. One of them is the HHLL trading strategy. You may be wondering what that is.

The HHLL trading strategy is a price action (based on price movements) reversal strategy that involves buying an instrument after the price has made a lower low and a higher high in a downtrend and comes back to the initial low. Similarly, a selling opportunity arises when the price, in an uptrend, makes a higher high and a lower low and then comes back to the initial high.

In this post, you will get acquainted with the HHLL strategy. Let’s dive in.

What is the HHLL strategy?

The HHLL strategy is a price action reversal strategy; which means, it is based on studying the price movements and aims to spot the reversal of the trend. In an uptrend, it seeks to spot a selling opportunity, while in a downtrend, it aims to spot a buying opportunity. The strategy involves buying an instrument after the price, in a downtrend, has made a lower low and a higher high and comes back to the initial low. Similarly, it spots a selling opportunity when the price, in an uptrend, makes a higher high and a lower low and then comes back to the initial high.

To understand the strategy, you need to understand how to use price swings to read the direction of the trend. To have an uptrend (bullish trend), there should be a series of higher swing highs and higher swing lows. On the other hand, a downtrend (bearish trend) consists of a series of lower swing lows and lower swing highs. The HHLL strategy tries to spot when that series is broken, indicating a potential trend reversal.

HHLL meaning

As you can infer from our explanations so far, HHLL means higher high and lower low. For example, let’s say we have an uptrend that got to a high (H), then followed by a correction to a low (L). After that, the price makes a higher high (HH), and then we notice a breakdown of the trend structure, with the price making a lower low (LL), we will begin to think of a potential trend (bearish) reversal.

The entry rule for a buy trade would be as follows:

After the price makes the lower low (LL), signifying an impulse wave in the downward direction, expect a pullback to the previous high (H). That is where to enter a sell order.

 

Similarly, let’s say we have a downtrend that got to a low (L), then followed by a correction to a high (H). After that, the price makes a lower low (LL), and then we notice a breakdown of the downtrend structure, with the price making a higher high (LL), we will begin to think of a potential bullish reversal.

 

The entry rule for a buy trade would be as follows:

After the price makes the higher high (HH), signifying an impulse wave in the new direction, expect a pullback to the previous low (L). That is where to enter a buy order.

An example of the HHLL indicator

One indicator that can be used to trade the HHLL strategy is the Zigzag indicator. However, the indicator lags a lot.

HHLL trading strategy (backtest and example)

A backtest of HHLL trading strategy is coming soon.

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