Linda Raschke was one of the well-known traders that the discretionary trader at the hedge fund repeatedly pointed me towards to. He had a lot of respect for some of her viewpoints regarding trading techniques.
Just came across some earlier notes from working through some of her publications and thought I quickly share them here (see below). Basically a list of insights I had gained, or technical points that I wanted to draw attention to for myself.
On lindaraschke.net, there are a bunch of free-to-read materials published by Linda Raschke. As an example, here’s an article of hers on volatility breakout strategies. Thanks to Fredrik Wilkens, one of the systematic traders I follow on Twitter (a good guy to follow!) who tweeted that several weeks ago.
Hence, here’s a copy of study notes from several Linda Raschke articles – hope you find it interesting/helpful and are inspired to study her work further:
4 Important Principles
- Trends generally continue
- Trends typically reach an exhaustion point/climax
- Price will tend to consolidate/trade sideways prior to beginning a trend in the opposite direction
- Momentum precedes price – a new high in momentum will generally precede further new highs in price – thus, traders should enter new (breakout?) trades after new momentum highs
- Volatility tends to decrease in later stages of the trend (IV drops? Good for buying options?)
- Swing Points = Waves; Raschke uses 2.5 ATR move from last 14 bar high/low
- Quite some overlap with Voigt
- Patterns in the swing points => trend assessment
- Price moves in impulse moves or correction moves
- Continuation Patterns – Flags
- Reversal Pattern – V Spike – strong reaction accompanied by high volume – rare but meaningful
- Importance of prior session high/low, how price reacts at those levels, and what the prevalent trend is (if any)
Types of entries
- Entering on corrective move, in the direction of the trend
- Holy Grail setup
- Entry at point of reversal – price level at which the trend ‘changes’ from up to down or vice versa
- Power Buy/Sell – a corrective move, entering in the direction of the trend (more complex)
- Failure Test?
- Breakout from a tightening/coiling range
- Best to trade the initial pullback? Trading later pullbacks have less chance of success? Also applies to Holy Grail setup
- Target prior swing point
- Target relevant MA
- Target equal swing distance
- In strong trend – don’t set targets
- Keltner channels – to show a thrust in momentum – 2.5ATR bands around a 20 EMA
- Oscillator – also to show momentum
- 3/10 Oscillator – SMA3, SMA10, and SMA16 of the difference between SMA3 and SMA10
- 10-period ROC? Continue buying pullbacks if momentum continues to make new highs.
- Need for a bread & butter trade
- Need for environment, processes & routine