​Trading algorithm by A. Gerchik

Successful traders almost always work according to their own trading strategies. They approach their development very carefully and scrupulously follow all established rules during the trading process. This article will discuss Gerchik's strategy, focused on finding market entry points depending on the price position relative to important levels.

All trading systems of Alexander Gerchik involve the maximum reduction of losses, which results in an increase in profits. To do this, it is necessary to constantly maintain trading statistics, recording in detail all decisions made, including on the basis of which exactly such entry, exit, Stop Loss, etc. levels were taken. Only by constant personal development and improvement of the trading methods used can one achieve real success in forex.

The essence of Gerchik's trading system

The main idea of ​​the described strategy lies in the fact that 60÷70% of the time the quote fluctuates in the zone between two horizontal levels. The rest of the time, the price moves from one zone to another, breaking through their boundary levels. In this case, certain candlestick patterns are formed that confirm either a breakdown or a rebound.

As a candlestick combination in Gerchik’s trading system, a sequence of three candles is used, the High-price or Low-price of which forms a local maximum or minimum, respectively. Once such a pattern is identified, then after the third candle closes, you can enter the market:

• buying – if the Low prices of three consecutive candles (highlighted by a red rectangle in Fig. 2) formed a local minimum (limited by yellow horizontal lines in Fig. 2);
• selling – if the High prices of three consecutive candles (highlighted in Fig. 1 by a red rectangle) have formed a local maximum (limited in Fig. 1 by yellow horizontal lines).

Since the position is opened on the fourth candle (indicated by a white arrow in Figures 1 and 2), the described trading system is also called the “Gerchik 4 Candle Strategy”.

It should be taken into account that the level of a local maximum or minimum is described not by a specific price, but by a price range. Therefore, the Low prices or High prices of the three candles that form the extremum can be located at different price levels, but in an interval not exceeding the amplitude of these candles. In trading, such levels are called base levels, so another alternative name for the trading system under consideration is “Gerchik Base Strategy”.

Each level formed in this way has a certain strength, the relative value of which is determined by the number of candles involved in the formation - the more of them, the stronger the base level (the level in Fig. 2 is stronger than the level in Fig. 1).

Features of making transactions using Gerchik’s “4 candle” strategy

The previous section described the conditions for entering the market. But a complete trading strategy should also include a method for placing Stop Loss and Take Profit on each trade. In the Gerchik Base strategy, Stop Loss is set:

• for purchase – under the formed base level;
• for sale – above the formed base level.

The distance between the StopLoss and the formed base level is selected on the order of several points and, in general, directly depends on the working timeframe - the longer it is, the larger the size of the StopLoss.

And the Take Profit size depends on two parameters - the number of tests of the formed base level and the Stop Loss size:

• if there were 3 tests, then TakeProfit is equal to three times StopLoss;
• if there were 4÷5 tests, then TakeProfit is equal to four times StopLoss;
• if there were 6 or more tests, then TakeProfit is equal to five times StopLoss.

In this case, it is necessary to check whether there is a strong level on the way to Take Profit, which is likely to slow down the movement of the quote. If there is such a level, then it is better to set Take Profit at it.

Features of trading using the Gerchik Base strategy

Let's consider making a profitable transaction using the example from Fig. 1 (Fig. 3). A short position is opened at the level indicated by the red horizontal line (at the Open price of the 4th candle of the pattern). Stop Loss is set at the level indicated by the white horizontal line (at a distance of 9 points from the formed resistance). Since there were 3 tests of this resistance, the Take Profit is equal to triple the Stop Loss (its level is indicated by the blue horizontal line). On the candle on which the transaction was opened, Take Profit was reached.

Now let's look at the example from Fig. 2 (Fig. 4). You should enter the market at the level indicated by the red horizontal line, and Stop Loss should be set at the level of the white horizontal line. It can be seen that the size of the Stop Loss is too large and, if tested four times at the price of the formed support, the Take Profit would have to be placed too far (equal to four times the size of the Stop Loss), which would make it unlikely that it would be reached at the price, which is demonstrated in Fig. 4 (the price did not reach Take Profit and reversed, activating Stop Loss).

Therefore, for each transaction it is necessary to check the feasibility of opening it based on the expected size of the Stop Loss - if it is too large, then you should not open a position. Solutions in this situation may include the following:

• making a transaction not at the opening of the 4th candle, but a little later, if the price again approaches the formed extremum (or enters it);
• opening a position in several parts, each of which is closed after the price reaches the level of three-fold, four-fold, etc. Stop Loss with its simultaneous movement to the breakeven area.

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 a 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:

• 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

Working hours:

07:00 - The begining of the work day.

07:00 – 07:15 Re-analysis of yesterday's transactions, with a fresh look.

07:15 – 07:30 News. Their analysis and the state of world indices.

07:30 – 09:20 Preparing homework.

09:30 – 09:55

09:55 – 11:45 I trade stocks from selection.

11:45 – 01:30 Dinner. Watching stocks from homework. I am conducting repeated research.

01:30 – 03:45 I trade stocks with selection and new research.

03:45 – 04:00 I'm watching the imbalances come out .

04:00 – 04:15 Statistics and results of the day.

07:00 – 07:15 Re-analysis of yesterday's transactions, with a fresh look.

View both negative and positive trades from the previous day.

Assessing with a “fresh look” the entry point, stop and potential.

Analysis of points that were not taken into account, but should have been paid attention to.

I write down all the shortcomings and mistakes in a notebook in order to avoid them in the future.

07:15 – 07:30 News. Their analysis and the state of world indices.

View what macroeconomic indicators and news are coming out today in the US.

Which sectors may be active when this or that indicator is released.

As for volatility and potential, on the 5’ chart in TOS, with a normal scale, the grid division should be at least 0.25-0.50s, otherwise the stock is not suitable for me due to the small, most likely channel movement.

The main research I do is among 12 NYSE sector lists and one NASDAQ list. Looking through all the stocks, there are about 1000 in total. SPY, plotted on the main additional line graph, visually facilitates and speeds up the selection process.

When selecting, I also take into account at what volumes the stock approaches the non-breakout support/resistance level and what the market was doing at that time.

I pay more attention to stocks that, for example, on + SPY are not going up, are standing or are slowly but surely sliding down.

Gap also plays an important role when opening; if it is in the opposite direction from gapSPY, and has not recovered during the day, then the stock causes increased attention to me.

During the day, the potential for movement should be visible. Since the trading strategy is to trade from the level. When selecting, pay attention to the strong support/resistance levels at which the stock is trading.

Having selected a certain number of shares, I look at them again. I try to reduce the list to 15-20 items. I also look through the stocks from yesterday’s selection and leave those that suit me according to the selection algorithm.

Having compiled the final list, I outline strong levels for the day, as well as open/close and hi/low of the previous day.

09:30 – 09:55 Open. Watching stocks from homework.

I'm looking at how the stocks from my selection have opened. I pay special attention to those that made a gap in the opposite direction from the market or opened at a strong level.

I assess the strength and direction of SPY, as well as the strength of resistance and movement of the stock. I identify stocks that move in the opposite direction from the market movement or form a shelf at a certain level.

09:55 – 11:45 I trade stocks from selection.

You need to look for support and resistance. That is, where the stock is heading and where the movement may come from.

I choose a couple of stocks that follow my trading idea better than others. I upload it to Time&Sales and watch the printout for a while.

In the tape and on the chart, I should see that when a stock approaches the formed level, it begins to be actively pushed away from it, at this time, as a rule, a volume comes out at 1’ times greater than the average.

An important signal is the almost complete absence of sellers (if you are in the mood for a long position) in the stock, or at least not a significant number of them compared to buyers. That is, the return of the stock to the level should not occur due to active market sales, but due to the reluctance of the buyer at the moment to take an offer at an inflated price.

The stock must form a certain base, with a clearly defined level, usually not at one price, but in the range of several cents, depending on the situation.

The stock must have potential. This is one of the first things I pay attention to before entering a position. I pay attention to strong levels, patterns, as well as the direction of the market trend and whether it will give this stock movement.

When trading from a level, you should evaluate the risks, and from the prints you need to see a big player who is ready to accumulate a position for a very long time (hold the level), otherwise do not enter!

If the stock is strong, my entry is not at Hi, but at the lowest possible price where it hits. If the stock is weak, I need to find the maximum point to short.

a) direction of the stock (trend)

b) where who buys and how aggressively

c) where who sells and how aggressively

d) what happens when it seems like everything is turning around

The goal is (for example, for long) to see that there is no one to sell the stock, but there is a buyer or they are starting to buy very aggressively, which means that a lot still needs to be bought.

You should take from the level when it is worst, when the stock is as close as possible to the level, then the risk is minimal.

As a potential position, I consider stocks where you can only place a technically correct stop within 5-8 seconds.

Having chosen a stock for trading and determined the level of support/resistance, stop, potential and having received all the above signals, I am preparing to enter a position.

I set the limit (the lowest possible for long and the highest possible for short) price at which the prints were sold in the formed database. I immediately prepare a stopmarket order for the price selected for the stop.

When I receive the position, I send a stopmarketorder and begin to observe the further behavior of the stock.

If a stock begins to move not according to a pre-planned plan or has ceased to comply with the above signals, then, without waiting for a stop, I close the position on the market.

If the position is not given for a long time and the situation in the stock has changed, you should cancel the order and continue to monitor the stock. Take a position only at a predetermined price, there is no time to catch up with the stock.

Holding a position is accompanied by the following actions:

a) monitoring by time&sales the printout in the stock, the balance of forces and the size of orders submitted for purchase/sale.

b) use the chart to monitor the approach to levels and price patterns. Watch how the situation changes there as you approach it.

c) look at what volumes and in what direction SPY is moving.

d) monitor what volumes and candlesticks the stock is moving on. Whether the momentum in the stock continues, beat off the retracement levels on small timeframes.

By analyzing all these points and drawing certain conclusions, the position can be covered by a market or a tightly pulled stop.

Risk management with an open position.

Initially, the risk is given no more than 8c and a minimum ratio to potential profit of 1/4. Depending on volatility, volume, momentum and other private factors, the stock's stop moves differently. But having a single meaning of setting a rollback level or a newly formed base. The first movement stop is made to the level without loss (that is, +2..3s from the entry point). In slow stocks, this is done when moving 10-12 seconds away from the entry point; in fast stocks, the initial correct technical stop is held until the stock leaves the accumulation base and begins to consolidate at a higher level.

Exit from position:

It is carried out when a predetermined potential is reached and a signal is received about a reversal or a stop in movement due to the departure of an active player from the action.

It is performed in various ways depending on the volatility of the stock and the current situation. In a quick promotion, quick orders such as market and stopmarket are used to exit. In slower stocks, you can exit using a limit order by placing it at the price, which has become the new support/resistance level located in the zone of the achieved potential.

11:45 – 01:30 Dinner. Watching stocks from homework. I'm doing a repeatresearch.

I continue to monitor the selected stocks, which are going according to plan, but due to various reasons have not yet provided entry points. I pay attention to whether the volumes and trend in the stock have decreased during lunch, or whether a big player in the stock is still active. I identify particularly active stocks and watch them.

I sort the watchlist in TOS by NetChange criteria. Accordingly, the stocks that moved up the most are at the beginning of the list, and those that moved down the most are at the end of the list. Based on the intraday SPY trend, I view and select top gainers and top losers in each sector separately and in the list of stocks traded on NASDAQ. When choosing, I still pay attention to strong and weak stocks.

In the observed stocks, I draw the same opening/closing levels, as well as strong support/resistance levels formed within the current day. I identify new potential entry points based on the behavior of the stock and its movement trends.

01:30 – 03:45 I trade stocks from selection and newresearch.

Following the same formation, I continue to trade shares from homework and a new intraday selection.

03:45 – 04:00 I'm watching the exitimbalances .

I am looking at the list of stocks that had imbalancesMOCorders at the end of the day.

I filter stocks by price range from $10 to $50 and volume above 500K.

I only pay attention to those stocks whose imbalance is > 15% of the total traded volume.
- On the chart I should see that the stock has normal volatility and an average intraday range. And it is advisable to know minimal information about this promotion.

Having decided on several stocks, I load them into my feed and look at the chart.

For the last 15 minutes I have been watching how the imbalances are changing. I make certain observations and keep notes of them.

I compare the final results with the expected ones. I am looking for certain patterns of stock behavior, taking into account various factors such as (price, average volume, sector, market strength, etc.)

04:00 – 04:15 Statistics and results of the day.

- I'm summing up the day. I fill out all the statistics on transactions for the past trading session with brief explanations of entry points.

I write down all my observations for the day in a notebook.

I fill out psychological and technical diaries.

1. I don’t trade for the first hour, I watch how the instrument is traded (breakouts of levels are traded for the first hour).

2. Trade strictly according to the algorithm.

3. Enter into formations that I see and understand.

4. Trade only rebounds from levels.

5. Two timeframes are used for trading:

a) day - determining levels, trend direction, ATR and power reserve;

b) 5 minutes – determining the entry point.

6. Trade from stop.

7. Power reserve:

a) daily ATR – up to 75% entry into the trend, after 75% entry into the countertrend;

b) look at the nearest support/resistance levels.

8. Wait for the entry point, do not search. Who seeks will always find.

9. Enter with limit orders.

10. Start trading with one contract:

a) if the week closes with a profit, I increase the volume;

b) if the week closes with a loss, I reduce the volume.

11. The maximum risk per transaction is 1% of the deposit.

12. The maximum number of losing trades per day is 3 trades.

13. If on a profitable day a losing trade takes 30% of the profit, the working day is over.

Markets (forts)

Tradable instruments:

Stock futures contracts

• OJSC "Sberbank of Russia" ordinary shares
• Gazprom"
• Si – dollar-ruble exchange rate

Trading time (forts)

Work schedule

10.00-14.00 Beginning of the main trading session.

14.00–14.03 Interim clearing session (day clearing).

14.03–18.45 End of the main trading session.

18.45–19.10 Evening clearing session.

19.10–23.50 Evening trading session.

From 10.00–11.00 I watch the market and do not trade. I don’t trade at the beginning of the evening session.

Levels (forts)

1. I determine the levels at D1, the day is always primary.

• Level – the point (price) at which the issuer changed its direction, i.e. We don’t know where the level was, we only take historical events. After the fact.
• Levels are formed only by a trend break or long trades.
• The strongest levels are formed by tails and false breakouts.
• We believe that everything goes from level to level.

2. It can become a level.

• The closing price of the instrument on the previous day.
• The opening price of the instrument on the previous day.
• High/low of the year
• High/low of the previous month/week/day.
• The lower retracement point on an up-trend and the upper retracement point on a down-trend.
• High/low spike on large volume.
• Border gaps.

Levels that were “worked out” in previous days.

3. Strength levels (from weak to strong)

• Air level (1+2+3+4 in a beam, BSU has not been encountered before within the screen).
• Air level + round number.
• Level encountered before.
• Previously encountered level + round number.
• Mirror level.
• Mirror level + round number.

4. Air level (+ 1 point)

• The weakest model in terms of information content is the air level.

BSU-bar that formed the level.

BPU— the bar that confirmed the level.

This is where the BSU is; BPU-1 and BPU-2 go all in a row, without gaps.

• At the air level, do not enter into a countertrend! Only according to the trend.

Air level + round number (+ 2 points)

• There is such a thing in technical analysis as a round number, for example the level 79500 or 39000.
• Typically, the strongest option levels are located at these levels.
• These so-called round numbers - they strengthen the levels, that is, if the level is located on a round number, then its strength is stronger.

5. Level that has been encountered before (+ 3 points)

That is, somewhere there was some kind of trading and a reverse limit order begins. The level that was encountered earlier is naturally more informative in strength.

There can be any number of bars between the BSU and BPU-1.

6. Level that was met before + round number (+ 4 points)

7. Mirror level (+ 5 points)

8. Mirror level + round number (+ 6 points)

Mirror level, i.e. in simple terms, where the support level becomes a resistance level (and vice versa) - this is the strongest level in terms of information content.

9. Level Boosters

• Tails (wicks) – if there were long shadows when the level was formed.
• Round numbers – psychological level.
• False breakout is a breakout formed by two bars stronger.

There are also two levels that are not suitable for creating a trading model and carry only information:

• Floating – there is no clear limit player;
• The internal one is clamped and has no power reserve.

Trend (forts)

• For us, a trend is where we are relative to levels.
• On the daily chart we look at the current price relative to current levels, i.e. below the level - go short, break through the level down and gain a foothold - go short.

• If we are above the level, it means that we are in the long zone and we are looking at all trades in long. We broke through the level up and settled – long.

• For us, zones are our trend.
• There is only one task: above the band - we buy, below the band - we sell.

Conditions for entering a trade

1. We determine the levels during the day.

2. Global stock trend:

• If we are above the level, it means that we are in the long zone and we are looking at all trades in long.
• If we are below the level, it means we are in the short zone and all transactions are considered short.

3. Power potential (reserve).

a) We look at the average ATR for the last 3-5 days;

• Entry following the trend – when the instrument passes up to 75% ATR;
• When we pass 75% – ATR, we do not trade with the trend. We are looking for a counter-trend entry point.

When an instrument is near record values ​​– it overwrites high/low – we can close one eye to the past ATR and continue to follow the trend.

b) I'm looking power reserve to the nearest support/resistance levels.

4. If there are no shadows on the candle of the previous day, it is likely that the movement will continue - someone did not manage to buy/sell everything yesterday (it is also a “panic” candle).

• Closing a transaction at the highest/low level – 9 out of 10 continuation of the movement – ​​not everything is bought/sold.
• No more than 10% play is allowed.

5. I am looking for options for a short stop – a strong level.

6. Stop loss calculation

• Max. Stop loss 0.2% – trade following the trend. 0.1% – against the trend.
• Si = 20 points (not calculated)

7. Calculation of profit (Take profit)

• Risk/reward ratio of at least 1:3
• If the entry is more than one lot, I exit in parts of 50-60% - 1:3, break everything else into parts - 1:4, 1:5, 1:6, etc.
• When the price passes the goal 1:3, I transfer the remaining parts to 1:2.

8. Calculation of backlash = 20% of the Stop loss size

Si = 04 kop. (fixed)

9. TVH – BSU; BPU-1; BPU-2 TVH

• Entering a trade with a pending order + backlash.
• I set stop loss right away.
• I set take profit right away.
• Don't go under pressure.

Entering a position

Model

1. We have a level.

• BSU is the bar that formed the level.

2. BSU is a post-facto phenomenon that confirms the presence of a previous level.

3. BPU is the bar that confirmed the level.

4. There can be any number of bars between the BSU and the BPU. BSU and BPU must hit point to point.

5. The BSU can be located in any plane relative to the BPU, i.e. it doesn't matter where it is located.

6. After BPU-1 comes BPU-2. There cannot be any other intermediate bars between BPU-1 and BPU-2, i.e. they must be a bunch. BPU-2 may not reach the level of the amount of play.

7. TVX is the entry point.

• 30 seconds before the closing of BPU-2, a limit order to sell or buy is placed.

8. After placing a limit order, I immediately place Stop loss and Take profit in the order.

9. A limit order to buy or sell is canceled when the instrument passes 2 stops.

• The main condition for 2 stops is the closing of a bar or candle at the level of 2 stops.
• If the price approaches the next level with abnormally large bars, this is a signal to exit the trade; a rebound from the level is likely.
• If the price approaches the next level with small bars, this is an accumulation of the position, a breakdown of the level and Support Resistance is likely.

Models we are looking for

• At the levels, you need to learn to see the battle plan between buyers and sellers and choose the winning side.
• Traders' belief in support and resistance levels shapes these levels - these are self-starting mechanisms.
• What is the logic of traders based on, what puts pressure on traders’ brains? - Templates! Patterns are triggered, and it all works on the analysis of the past, on the analysis of charts.
• Everyone sees the same thing. But still, the connection will always be the same - to the level.
• Everyone is looking to be attached to something.

Entry points

There are situations when there are limit agents at the top and bottom. Provided that the price is clamped from above and below by limit levels, the work is carried out according to the local trend.

• We came from below - we go up.
• We came from above - let's go down.

The exception is the previous historical level.

• If there was a historical level, we go into a countertrend.
• If there were no historical levels, we follow the trend.

Range (RANGE)

At RENGE we keep things simple. We have a corridor.

• And naturally, the lower and upper boundaries of the corridor are our levels.
• Trading is carried out from level to level.
• The corridor width must be at least 3 ATR.

Exit from the deal

The hardest thing is the simplest, oddly enough. These are the exits.

I come up with an extremely simple ratio: 3 to 1; 4 to 1 and 5 to 1. This is any intraday transaction.

• 3 to 1 – we get 50-70% of the transaction volume.
• I break everything else down into parts.

Only when we do a breakdown by output, only in this way can we learn to sit in the issuer.

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 that are 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

Alexander Gerchik’s trading algorithm requires a clear knowledge of the basic 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:

1. 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.





2. 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.
3. The candle pierces the level, but closes above it. 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.





4. Poked with closure below the level. Completely similar to the previous pattern, but it works for selling when approaching the level from below.
5. Breakout with subsequent 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 high. 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.





6. 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.
7. 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.





8. 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.