Triple Threat Trading With COT, Order Flow & Pin Bar

As we know, combining the Littlefish FX trading tools can be a sure-fire method for enhancing trading returns. So this week, in response to some questions we have been receiving about some of our most powerful tools, we are going to walk through some examples of how combining the tools to add levels of confirmation and filter can be deliver fantastic results.

Tools of The Triple Threat Trade

So the tools for the Triple Threat Trade are the COT Indicator, Order Flow Trader and the Pin Bar Indicator (all indicators available with our Forex Trading Course). For this strategy we use the the Strength element of the COT indicator to define overall directional bias, as this element of the COT Indicator (The Green Line) demonstrates the net positioning of Commercial players in the market which represents the smart money, this is the side of the trade that we want to align ourselves with

In the example below, we see the Green line of the strength element of the COT indicator is below the blue line which alerts to be on watch for bearish set ups.

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Once we have our directional bias confirmed by the COT Indicator representing the longer term positioning of smart money, we then turn to our next confirmation tool which is the Order Flow trader, we are essentially looking for a confirmation of the medium term flow bias of larger market participants.

In the example below we can see that the near term Order Flow has turned bearish

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Now that we have longer and medium term bias confirmed we are on alert short a shorter term confirmation to complete the ‘Triple Threat Trifecta’ for the final confirmation we use the Pin Bar Indicator. The Pin Bar Indicator alerts us to a near term reversal in the market in favour of the the direction of the other two indicators meaning we have a long, medium and short term signal.

For the purposes of this strategy we only take Pin Bar signals in the direction of the other two filters. So in this instance we are on alert for bearish Pin Bar signals to engage the market and enter short positions. In the example below we see that we have the triple threat confirmation, Bearish COT Indicator, Bearish Order Flow Trader and a bearish Pin Bar.

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Now we have our signal to engage the market lets look at how we manage entry exit and trade management.

Lets walk through the trade.

The Pin Bar gives a sell signal and we enter short positions at the close of the bar with stops placed 1pip above the red stop line that the Pin Bar Indicator paints.  As the price action develops we move our stops to reduce risk and secure profits as price trades through the TP levels. So as price  tests the TP1 level we move our stops to entry, as price tests the TP2 level we move our stops to TP1 locking one times our risk we exit the trade at TP 3 which give the trade 1:3 risk reward.

2015-03-31 16_23_17-In the example above the  price action develops from entry to test the TP 1 level as such our stops are moved to break even these  trailing stops are triggered and we exit the trade as a scratch for 0pips. The Pin Bar trader next gives a bullish signal which as per the strategy we ignore.

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The Pin Bar Indicator next gives a sell signal in line with the COT and Order Flow Trader. We use the same execution method as outlined above. Price action develops we trail our stops through the the take profit levels reducing risk and securing profits as the price action develops the trade moves favourably and we exit the position for a gain of 108 pips at TP3.

Alternative Trade Management Tactics

An alternative trade management tool which may allow you to capture bigger moves in the market is to close half your position at the T3 level and allow the rest of your position to run using the medium term Order Flow Trader to trail stops as defined by the daily red stops. the strategy here is too move stops to 1 pip behind the daily red dot the Order Flow Trader prints as demonstrated below.

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As you can see from the example above once we exit half our position 108pips we trail the remainder of our position using the re daily dots of the Order Flow trader, our trailing stops are eventually triggered for a gain of 779pips this give a net gain on the trade of 887pips we divide this by two 443.5pips to give a representation of the real return based on our initial risk of 55pips which give a risk reward ratio of 1:8.06 which is the type of return ration we are looking for as aspiring professional market participants.

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