Every trader, at a certain stage of his work, thinks about creating his own algorithm for systematization of trading strategy. We bring to your attention Gerchik trading algorithm, which will allow you to build an ideal trading algorithm for yourself. To date, Gerchik's trading algorithm is one of the most successful algorithms ever presented. Gerchik’s algorithm not only contains entry points into a market situation, but also gives a description of the working day. Discover Gerchik trading and the results will pleasantly surprise you. , like its algorithm, has been successfully teaching traders to systematize their trading strategy for several years.
Detailed working day schedule.
2.00-2.30 — Repeated analysis of transactions. Transactions from the previous day are reviewed, and homework is also checked to identify shortcomings and errors.
2.30-2.45 — Selection of stocks on the Finviz website according to the required parameters:
- Exchange - select NYSE;
- Industry select Stocks only (ex-Funds);
- Current Volume - over 500K;
- Price - $10 to $50.
This selection yields approximately 350 to 5,000 shares, depending, of course, on trading volumes during the previous trading session. On this site you can view futures to determine the market situation.
2.45-4.30 – Selection of shares. After selecting the parameters, the shares are imported into the Thinkorswim terminal, where you need to view them using two charts:
- The top M5 (called the five-minute chart) shows you the last five days, and by the way, there are no indicators here.
- lower D1 (day), it shows the year, indicators from 50 to 200 SMA.
Now you need to filter stocks according to Gerchik's algorithm. We select stocks that performed well in the five-minute and day periods. Smooth movements on the five-minute are considered to be those that had no gaps or squeezes over the past day, and there is an opportunity to make an entry with a stop of up to ten cents.
Gerchik's trading algorithm also focuses your attention on factors in the daily chart, which determine whether the stock is worth keeping for further consideration. First of all, pay attention to the strong and weak shares in the market. This means that it has strong buyers or sellers who are not closely monitoring the market situation. Stocks that are weaker than the market can give good movement when the market turns to the downside. The same thing happens with growing stocks, only in the opposite direction. On the daily chart, the price is pressing against the level and at the same time the volume in the stock is increasing. Such stocks can be viewed both as a breakdown and as a rebound from the level.
Now let's look at the factors for trading according to Gerchik on a five-minute chart, which will determine whether the stock is worth leaving for the next consideration. To do this, there must be an intraday movement potential of at least 50-60 percent, smooth movement, the ability to place a stop within seven cents and the presence of points of contact from which new intraday levels and entry points can arise.
After such filtering, from the selected 350-500 shares, about 15-30 shares remain, which we leave on the Thinkorswim list until the next stage of stock selection.
4.10-7.30 – free time for personal affairs.
7.30-8.30 - Final selection. We look at each of the 15-30 stocks and make a plan for each. To simplify your work and not get confused, we divide the stocks into two sheets, the first - those for which you can draw up a specific plan for the trading session. Near each of the shares we make a so-called “shot” sheet and a “long” sheet, and describe the options for possible events. And on the second sheet, write down stocks that you are interested in, but do not yet see a specific plan of action.
8.30-9.10 viewing the conference on the SDG website, viewing news, company reports, gaps and futures analysis.
9.10-9.20 Final preparation for the trading session. We put tickers into Graybox and TOS. We create a Flexible Grid window in TOSE in order to be able to simultaneously see 8 main stocks from homework on the third screen.
9.20-9.30 – free time.
Now we begin the trading session using the Gerchik algorithm:
9.30-10.30 – Don’t rush and trade in the first hour, see how your shares will be opened, how your homework is completed. If any comments arise, write everything down on paper, then review the noted points during the trading session.
10.30-12.00 – Pay attention to which of your stocks are approaching levels (five-day highs/lows, round numbers, close/open of previous days, levels at which stocks stopped significantly in previous days) and wait for an entry after a breakout at a mirror level.
12.00-13.30 - During this period, it is worth trading only rebounds and looking for stocks that, after a big movement, have rolled back or are consolidating at some level, so that when leaving this consolidation, take them to continue the movement.
13.30-15.00 - A suitable time for trading shares to continue the daily movement, which have pulled back, stood still and are ready to resume movement.
Stocks that have not had pullbacks are worth trading only on very strong days when there is specific momentum in the stock and the buyer or seller does not allow the stock to have pullbacks.
Shares that, after a significant movement, have made a slight rollback to the level, take them in the direction of the original trend, but only if there was a good stop and trading at the level at lunchtime.
15.00-16.00 – there is no point in trading, it’s better to just watch the market.
16.00-16.30 - time for summing up. Analysis of how the stocks performed from your homework, what you missed, and what did not go according to plan, analysis of your own completed transactions for the day. Also take screenshots of transactions and fill out statistics.
16.30 - the working day is over.
Conclusion
If you follow Gerchik trading algorithm, Success will certainly await you, because its algorithm has many years of successful experience, which means it is an excellent example to follow. And remember, don’t chase quick results, focus on quality, and the result will manifest itself.
As you know, up to 2/3 of the entire time the market is in a flat, fluctuating around the same level. Then the price rises or falls with varying intensity to the next level, at which it can stop for a while, or it can immediately turn around and move in the opposite direction. You can predict the future behavior of the price quite accurately based on the candlestick patterns it forms. This is the principle of analysis that underlies Gerchik's strategies described in this article.
The main identifier of this trading strategy is the formation by maximum or minimum prices of several consecutive candlesticks of a level, respectively, resistance or support. As a rule, such testing of the level with 3 candles is sufficient, and at the opening of the fourth one enters the market. Therefore, one of the names of this Gerchik strategy is “4 candle”. It was developed by professional trader A. Gerchik, who defined the basic rules for it.
Fundamental principles of Gerchik's strategy
The most important parameters that a trader will need to determine are:
- market entry point;
- stop loss placement level (must be minimal, but not less than 10 points - determined based on the size of the deposit and the money management system used);
- level of take profit placement (determined based on the strength of the price level, and it is desirable that the ratio of potential profit to potential loss is at least 3:1).
First, you need to find all nearby local extremes near which price consolidation occurred. They serve as an identifier of the market maker’s action, which consists in collecting the positions of small players in order to then go against the majority of them. Therefore, the subsequent market movement will be determined by the market maker based on which transactions were completed more (the price will go against the majority, leaving them at a loss). Thus, the next task of a trader trading according to the Gerchik strategy is to determine the direction in which the market maker will move.
A clear sign of the market maker’s interest in this level is the impossibility of price overcoming it several times. The number of such price rebounds from the level determines its strength. It should be taken into account that the level is not a specific price, but a range several points wide. Since such levels can be considered basic, another common name for the described strategy is “Gerchik Bases”.
Parameters for concluding a deal
The direction in which the trade will be opened is determined by which side the price tested the level from (Fig. 1):
- if from top to bottom, then you need to prepare to make a purchase;
- if from bottom to top, then sale.
You should enter the market only after the price has bounced off the level three times. After the third candle closes, a position is opened at the opening of the fourth.
Each opened position is accompanied by setting a stop loss and take profit. It is advisable to place a stop loss several points above (below) the tested level when selling (buying). The number of points separating the market entry and stop loss levels is used to calculate the take profit level:
- if the price bounced off the tested level only 3 times, then the TP is placed 3 times further than the SL;
- if the price was rebounded 4÷5 times, then the TP is placed 4 times further than the SL;
- if the price bounced from the base level 6 times or more, then the TP can be placed 5 times further from the entry level than the SL.
Examples of using Gerchik's trading system
Based on the rules described above, in Fig. 2 shows examples of opening profitable transactions to buy an asset. First, the price tests the support (blue line) 4 times, after which at the opening of the next candle the following is done:
- market entry (yellow line);
- setting a stop loss below the support level (red line);
- setting take profit (green line) with a ratio to the stop loss size of 4:1.
The price tests the next support 3 times, so the ratio of the take profit to stop loss size is taken equal to 3:1.
And in Fig. Table 3 indicates conditions favorable for opening profitable short positions. First, the price tries to break through resistance 7 times, so the ratio of the take profit level to the stop loss level is chosen to be 5:1. In the second trade, the price tests resistance three times, so the ratio of stop loss to take profit is chosen to be 1:3.
Thanks to the much larger take profit than the stop loss, losses from even 10 consecutive losing trades will completely compensate for 2–3 profitable trades. In this case, you should be careful and not enter the market if the stop loss size exceeds 1÷3% of the deposit size.
For example, in Fig. Figure 4 shows that after testing resistance three times, the 4th candle opened at a considerable distance from the tested level. Therefore, when concluding a trade using this signal, it would be necessary to set a very wide stop loss, at which the achievement of even a three-fold take profit is quite doubtful. In such cases, it is better to refrain from entering the market.
Watch the video on Gerchik's strategy
“Desperate people do desperate things.” In market parlance it goes like this: “Desperate traders always take too much risk and are almost certain to lose.” To avoid this fate, I share with you the 10 commandments of trade from Alexander Gerchik.
I found them in his book “The Active Trader Course”. And if you trade or decide to day trade, then you should definitely read it.
Commandment 1. Trade for success, not for money. The market is not money. Your motivation here should be a well-executed deal. Concentrate on the trading process, and profit will come by itself.
Commandment 2. Remember discipline is the key to success. Without it, you won't be able to handle risk, listen to yourself, or consistently follow her cues.
Commandment 3. Know yourself. If the thought of putting money on the line makes you sleepy, then low-risk diversified is the way to go. But if you can manage risk with discipline, then perhaps trading is the activity for you.
Commandment 4. When you trade, forget about your ego. Allow yourself to quickly exit losing positions when the market proves you wrong. And when you achieve success, never let it go to your head.
Commandment 5. When it comes to the market, there should be no question of such things as prayer or hope. When the market reaches your level, exit. Even if the market then turns around and immediately begins to rise before your eyes, you should congratulate yourself for having discipline.
Commandment 6. Let your profits run and stop your losses quickly. Exit when your losses are small. Then re-evaluate the market and make a new trade. Once you reach your target profit, don’t be greedy, but exit. You will never go broke by taking profits.
Commandment 7. Know when to trade and when to wait. Be present in the market with your mind, not your money. Trade when your analysis and your system say you have a buying or selling opportunity. If the market doesn't have a clear direction, wait for it to acquire one.
Commandment 8. Love your losing and winning trades equally. Perhaps even more unprofitable ones, since they are your best teachers. When you have a losing trade, something is out of phase with the market. Determine what went wrong, adjust your thinking and re-execute the deal.
Commandment 9. After three losing trades in a row, take a break. This is not the time to take any more risks. Take some time away from the game, watch the market, clear your head, re-evaluate your trading strategy, and then take a new trade.
Commandment 10. The rules cannot be broken. We all know that sometimes you can break a rule and get away with it. But sooner or later, the rules will catch up with you. If you break these 10 commandments of trading, you will ultimately pay for it with your profits.
And by tradition, a question for you: Which of the following commandments do you keep? Which of them cost you dearly if you failed to do so? Share in the comments below.
Do you trade cryptocurrency? Connect to my.
Alexander Gerchik's trading algorithm is based on technical analysis. It is suitable for working on the stock market, futures market, and the Forex market. The strategy is to identify strong levels on the daily chart and search for an entry point on smaller tamframes upon a rebound or breakout of the level. The entry point is the “trace” of a limit buyer or seller. This point is searched using a specific algorithm.
The advantage of Alexander Gerchik’s strategy is the formalization of the algorithm. This is a simple and, most importantly, the only model for determining the entry point and calculating the stop. The trading course has evolved greatly in this regard. If 10 years ago they taught different approaches to determining the entry point (and often people did not know where they should start in trading), now it is one rigid model. In my opinion, this is a more correct approach. You need to learn to do one thing that will work. First you need to learn not to lose money, and then gradually improve your trading. The seminar is positioned not “how to become a millionaire”, but “how to learn not to lose money in the market.” At the beginning of training, Alexander Mikhailovich immediately warns that out of a group of several dozen people, only a few will be able to work as a trader.
2. Support/resistance levels
The analysis begins by looking for strong levels on the daily chart. On the daily chart, the tracks and intentions of major players are better visible. Strong levels are:
1. Trend break points.
Alternatively, this is a turning point after a strong movement with long bars:
The level is the previous local minimum (marked with a green line).
2. Mirror level.
At this level there is a change of players. One strong limit player beats another.
False breakouts by one bar or two bars enhance this type of level. A breakout by two bars strengthens the level further:
Before a strong movement, they usually try to force weak players out of the market using false breakouts. After a false breakout, there should be a strong impulse in the direction opposite to the direction of the false breakout. In the example in the figure above, a major player will not allow the high to be updated after a false breakout. Also, a false breakout can be made in the form of opening an instrument with a gap. In an example, this could be an opening with a gap above the level, and then the price moving down.
If, when a strong level is broken, there is no impulse to continue the movement, then there is a high probability that there will be a false breakout. In general, a pullback works more often than a breakout because 75% of the time the market is in a range.
If we see a situation where the bars are “pressing up” to the level, and then the bar levels off or the next bar turns out to be lower than the previous bar, then this means that there will most likely be a reversal. In the example in the figure below, the dynamic buyer turned out to be weaker than the limit seller:
You need to watch how the price approaches the level. If, when approaching a level, the price draws short bars without tails, then the chances of breaking through the level increase. You also need to take into account how much the price had already traveled within the day before it reached the level. If it has passed 80% of its normal average daily movement, then most likely there will be a reversal rather than a breakout of the level.
4. Consolidation zones (floating level).
A strong level on the daily chart can be not only a line, but also a trading area, some kind of price range. There will be false breakouts around the level, the price is moving around a certain price. The point that we touch the most, or the point where the stops are trying to collect, is a strong level. In the case of a floating level, you need to wait for the trading to stabilize at a certain price and for the victory of one of the parties. Inside the channel, it is not clear in which direction the major player is gaining position. This can be understood by observing how the price behaves at the boundaries of the channel, near strong levels, in which direction and how these levels break through.
5. The points from which the movement began, making a new high or low.
On the left of the chart, we are looking for the closest point from which the movement began, making a new high. A major player will not allow the price to go below the previous low, so as not to break the buy pattern. In the figure, this level is indicated by a green line.
6. Level built with unusually large bars.
Unusually large bars can be considered bars with a size equal to or greater than 2ATR (statistical average movement of the instrument) over a certain period of time. Also considered strong is the level formed by bars with long tails (touching the long tails), from which a strong movement began. Additional.
When analyzing daily charts, the most important thing is to determine the location of the price relative to levels and accumulations. You need to start your analysis with the daily chart, strong levels on it and closing candles relative to these levels. Trades are opened only after the day closes above or below a certain level. If the price is below the level during the day, we can open shorts.
Levels are confirmed by volume. The seminars do not talk in detail about the use of volumes, but in his trading A.M. Gerchik works with VolFix. Levels with maximum horizontal volume and clusters with maximum volume on the bar are built. It is necessary to look at where the volume comes out, in which direction the price leaves the cluster, what happens after the volume comes out. We determine after the fact who ultimately won.
Next, after identifying a strong level, we wait for the price to approach it and form an entry point on a smaller timeframe.
3. Entry points
The model for determining the entry point is quite simple. We are looking for the trace of a limit player in the form of a level formed from several bars. In the picture below, the leftmost bar is the bar that formed the level. It can be anywhere on the left side of the chart. The second bar that touches this level will be the confirmation bar. The second bar can touch the level both above and below. In the example, the first bar touches the line from above, and the second bar touches the line from below. In the following figure, all bars touch the level from above. The third bar, confirming the level, should either touch the level or slightly fall short of it (by the amount of play, which we will talk about later). If the third bar breaks the level, then you need to look for a new entry point, because a breakout will mean that there is no limit player at this level. Before the third bar closes, we place an order. On the fourth bar (in the pictures it is indicated by an arrow) the order is executed - this is the entry point. We place the order not at the level itself, but slightly retreating from it by the size of the backlash. After the second bar, which confirmed the level, the price may move a little and not allow entry. If the price moves away from the level by a distance of less than 2 stops, when the price returns to the entry point, we can enter. If the price moves to a distance of more than two stops, then the model breaks, because the price may accelerate and break through it when returning to the level.
Backlash is the maximum allowable distance from the level to the entry point. The play can be up to 20% of the stop size. For the Russian stock market, the stop may be 0.1-0.2% of the issuer price. For most US stocks, the stop is a maximum of 7 cents. If you are trading medium-term, then the stop should not exceed 10% of the daily ATR.
There is another variation of the entry model. This is the so-called air level. If in the two pictures above the first bar that formed the level was once in history, present on the left of the chart, then the air level is a level that has not been encountered before. In this model, four bars are in a row. If the trade is against the global trend, then you need to wait for consolidation of six bars in a row. The entry rules do not change:
To avoid psychological swinging, you need to follow the rules, set a stop, set a take profit of 4:1 and just wait. After the price moves in the amount of your 2 stops, move the stop to breakeven. The output must be system. It is better to go out according to strict rules so that there is no additional psychological pressure. It is the skills that have been developed to the point of automaticity and adherence to the rules that will not allow you to shake your psyche. I advise you to read mine on this topic.
Based on my trading experience, the most difficult thing in the algorithm is finding strong support/resistance levels. The course spends a lot of time on levels, but their definition is less formalized than entry and exit points. During practical classes, many important details come up that help you understand how the levels work and, in general, how the market works as a whole. I recommend visiting Gerchik's website and watching his video Youtube channel, as well as on the company channel Gerchik & Co. From videos posted publicly, you can glean a lot of useful information regarding identifying strong levels.
In real trading, the difficulty is that you need to wait quite a long time for these levels. Often, while waiting, there is a desire to open a position at weaker levels, somewhere inside a narrow channel, with less potential in the transaction. Such low potential transactions should be avoided.
Potential is just one of several factors that can give you an edge in a trade. Among the factors that give an advantage are:
- trend;
- short stop;
— good power reserve;
— entry after a false breakout;
— approach from the level;
— mirror level;
— local extremum;
- round price.
Another important point that is discussed in the trading course is statistics. You need to keep a journal of transactions. Unfortunately, many traders don't do this. First you accumulate statistics, and then the statistics work for you. Knowing your statistics, you can adjust working hours, days of the week, and instruments traded. To analyze your statistics, you can, for example, use the Webmarketstat service. By uploading your data there, you will see where your problems are and how you can change your trading and make it more profitable.
In conclusion, I would like to say that the most difficult thing in trading is to follow your own algorithm, set stops and work in accordance with your risk parameters. Do not start trading without external risk management from a broker. Don't rely on your own discipline. Sooner or later it will let you down, and no profitable strategy will help you.
I would also like to say that Alexander Mikhailovich is one of the few successful traders who can teach, and whose approach to the market really works. His seminars are constantly evolving in line with changes in the market. So, if his approach to trading is close to you, then get training. You will get much more information than is in this article, and you will receive equally important support after training.
Alexander Gerchik is a legendary speculator on the New York NYSE, who managed to be among the best day traders of 2006 for the almost complete absence of negative trading results, which is a huge rarity even among great market professionals. As a simple boy from Odessa, without higher education or connections, he came to America in 1999. Having started, like many other emigrants, by working in a taxi, within three years the talented young man was able to complete a brokerage course and, having passed a difficult exam, began trading shares on Wall Street.
Just a couple of years later, having developed his unique trading algorithm, Alexander reached the heights of the trading Olympus and was hired as a managing partner of the largest financial company. This success story is like many others that tell the story of talent, perseverance and luck and can serve as a great example of achieving goals in the financial business. But the most remarkable thing about it is Gerchik’s unusual trading strategy, thanks to which he became so famous and successful.
The basis of trading using the Gerchik algorithm is that all the strongest and most significant movements in the market, which are especially profitable to use, begin precisely from the levels. By levels, the author of the strategy understands not only the support and resistance levels familiar to all of us in places of price extremes, but also various areas of consolidation classified by strength - peculiar shelves on the chart, from which you need to open transactions.
According to Alexander Gerchik, trading by levels, in addition to a clear and visual system, has another important advantage: a fairly high risk-to-reward ratio in transactions is maintained, which is always no worse than 1 to 3. The fact is that in trading, especially if the work takes place within a day, it is almost impossible to achieve more than 40–45% of successful transactions, which is an exceptional result. The majority of traders open their correct positions only 35% of the time or worse, and profitability is limited by the maximum daily movement of quotes. It is for this reason that Gerchik’s trading algorithm is based on consolidation levels, where the smallest stop loss is placed.
In addition to classifying levels by strength, Gerchik’s system divides consolidation zones into several types of patterns, each of which is an easily recognizable combination of bars located near the trading level and making small fluctuations before continuing active price movement. It is on the basis of patterns that the trader makes a decision on successful entry into the market.
The power of levels for trading according to Gerchik
According to the trading algorithm of Alexander Gerchik, there is a clear division of trading levels by strength. The stronger the signal, the fewer confirming bars are required to open a new trade. This classification is simple and understandable even for beginners:
- The mirror level of consolidation or the place where former resistance changes to support and vice versa is considered one of the strongest trading signals and can be entered on the third bar. The coincidence of the mirror level with a round number is a significant gain.
- The next most powerful one is one that arose after a false breakout, when the tail of the candle pierced the price mark, but trading resumed in the previous direction. To enter using such signals, three bars are enough, and a match with a round number serves as confirmation.
- A repeated level, which has already been passed by the price earlier with the formation of a similar consolidation, subject to a round number (00, 25, 50 or 75) as a psychological reinforcement of its strength. It also allows for a quick entry after three bars, although slightly weaker than the previous one.
- The previously existing level without confirmation in round numbers is the last strongest of this group. All weaker levels require completion of four full bars instead of three to enter.
- An air level or a new consolidation shelf formed as the price moves, if it is formed in the area of round numbers, is considered not the strongest option and allows entry after four confirming bars.
- An air level that has not been encountered before, if it is formed without amplification, is considered the weakest signal and requires 4 candles per entry.
Gerchik's strategy patterns
The trading algorithm of Alexander Gerchik requires a clear knowledge of the main patterns (market models) that can be formed by the price near the selected levels. There are eight such models in total – four each for buy and sell transactions:
- Candles stuck on top. Their bodies and tails are relatively short in length, no more than 150 points for a five-digit Forex broker. Depending on the strength of the level, 2-4 formative bars are required: two for the strongest with round number confirmation, three for most others and 4 for the weakest air signals. For long trades, the approach to the level should only be from above. The entry is always with a limit order slightly above the level, the stop is no more than 300 points with a mandatory daily supply of at least 1000.
- Reverse sell pattern. Candles stuck to levels of varying degrees of strength. Completely similar to the previous one, but the approach for short is only from below.
- The candle pierces the level, but closes above it. The bodies must be short in length, not exceeding 150 points. To enter a pattern with a limit order, only strong signals with confirmation of three bars are suitable. Stop loss up to 300 points is set either outside the lower shadow of the breakout candle or slightly higher. Transactions are opened with a power reserve of at least 1 thousand points.
- Poked with closure below the level. Completely similar to the previous pattern, but it works for selling when approaching the level from below.
- Breakout followed by repurchase of positions in the upward direction. The closing level of the first broken candle is slightly lower than or equal to the opening of the next one, and the closing level of the redemption candle is above its maximum. The bars forming the pattern should be no more than 150 points including tails. Works only with strong levels. Entry using a limit order after the third candle with a stop of 300 points and a minimum target of 1000.
- A figure similar to the previous one, but approaching the level from below. Opening a short position using a limit order with a stop of up to 300 points and a target of at least 1000.
- Formation of a mirror. This pattern represents a change from support to resistance when approaching a level from below. It only works on strong signals, provided the breakout candle closes above them. Bars confirming the pattern must be less than 150 points. To enter, limit orders are used with a target of 1 thousand long points and a stop of up to 300.
- A mirror level similar to the previous one, for trading short positions. Approach only from above.
Gerchik strategy for binary options
Despite the fact that Alexander Gerchik developed his trading algorithm specifically for stocks that he himself successfully traded on the NYSE, he recognizes the versatility of the method and its independence from the type of financial assets. Many traders have tested it in futures trading, and there are even special courses on the system for Forex players. Such a relatively new financial instrument as binary options is also quite suitable for profitable use of the level trading strategy.
The goal of a binary options trader is to predict the direction of price movement as accurately as possible. It is the level that is the separator for CALL and PUT type forecasts, the confirmation of which directly depends on how the price behaves after consolidation. To use the Gerchik system in binary options, no special changes or additions are required. It is enough to find the right time, in accordance with the above rules, and make an option bet in the desired direction. Of course, we must not forget about the standard rules of money management, which ensure success and safety in any trading.