Joe Ross Trading Strategy

22 Sep 2023

Hello everyone

This post will be devoted to the trading methods of the famous trader Joe Ross. There is very little information about Ross on the internet, mostly copied from his books, so let's try to study this situation more deeply.

The information is not for beginners. Support and resistance, trend lines, the concept of flat market, all this should be already worked out. You should already know and be able to apply them. You should also take into account that this Ross strategy used only in a trending market. It is not applicable in a sideways movement or choppy.

1-2-3 Setup

1-2-3 setup according to Ross is a reversal formation, that is, its development is information for thinking about the change of the current trend. This setup works absolutely on any timeframe and asset, which once again confirms its quality and flexibility.

Bullish Setup

This setup is formed at the end of the downtrend and consists of 3 key points. EURUSD chart, 1 hourly timeframe will be used as an example.

What is the point of the setup; after the bearish movement, when the price consistently made new lower highs and lows, a breakout of the last local high was formed. This means that there may have been a change of movement and market sentiment.

The setup is considered complete after the breakout of point 2. It is not the closing of the candle above point 2 that is considered a breakout, but the creation of a new high above this mark. After that it is taken as a condition that there is a new bullish trend. So, what we have in the case of a set-up occurring:

• A clear 1-2-3 pattern
• The pattern is finally formed and considered formalized after breaking the high/low at point 2

We identify the peaks, then we look for some sort of 1-2-3 formation to begin to emerge. If the last high is broken in a bullish setup, we look to see if this formation is clearly visible. If yes, we can enter the trade.

Bearish Setup

How this formation is built and what to pay attention to when marking charts. As we can see on the 1st chart, point 1 has formed a new low with its shadow. And here, when moving to the potential point 2 and then to point 3, the most important thing to pay attention to when marking this setup (for the example, we take a bullish setup) is hidden, namely:

• The highs of the candles from point 1 to point 2 must be higher than the previous ones. In other words, each new candle makes a new high. As soon as the next candle is formed without making a high - we have point 2
• When moving from point 2 to point 3, each candle should make deeper lows, while the upper highs of the candles should not be higher than point 2. If shorter, we have a decline going down like a ladder
• As soon as the next candle closed without forming a new low - ready, we have point 3

Ross Hooks (RH)

The next step, and it is the main one in trading this method, is Ross's Hooks. This is the fundamental part of his strategy, which, by the way, uses it more than half a century.
So, we have a 1-2-3 setup. There is a breakout of point 2 and the price goes up further. Each new candle makes a new low, while the highs does not go above the point 3. As soon as the next candle fails to make a new low, we have a Ross Hook (RH).

Let's look at an example for clarity:


We broke through point 2, created a new low and rolled back. The first RH and confirmation of the trend change to a downtrend appeared. Further price movement will be based on attempts to break through RH and pullback after the breakthrough and further attempts to establish new lows.

It would be interesting to note that at the current stage we do not care what candles formed this trend, there is no need to pay attention to Price Action setups. Even this simplified view shows the development of the trend, its growth and direction. Later we will see how to apply hooks and trade with them in combination with Price Action setups.

Ross Reversal Hooks
Ross Reversal Hook (RRH) is formed by a pullback from RH and the formation of a new low in the current trend. Let's take a look at the same example above:



Ross Trend Detection Methods
So, let's summarize the main methods of determining the Ross trend and its pros and cons.

Cons:
• Firmly identifying a trend change happens quite late. In other words, a part of the trend movement is lost.
• It is extremely rare that a 1-2-3 formation is formed, then RH, and the trend changes sharply to the opposite.

Pros:
• Despite the late entry, we have fairly reliable entries with low risks to our capital.
• We have a strict orderly system and we can clearly see if there is a trend on the current timeframe or not.
• The 1-2-3 and Rh formation works perfectly on any timeframe.
• The period of trend change can be detected at an early stage if we apply filtering and Price Action methods.

Now let's discuss trend detection methods in conjunction with basic Price Action methods. Forex trading is highly dependent on a few major factors. These are leverage size, spread size, lot size to trade, asset to trade.

Now, as for the definition of trends. Ross' principles are applicable to any timeframe, so, having defined your trading timeframe (let's say 1 hour), you should proceed to 4 hourly, 1 daily, 1 weekly timeframes. On each of them, in accordance with the rules of technical analysis, mark the trend lines, starting from the higher timeframe. As a result, we get a picture on the trading timeframe, within which we can see the price movement at the current moment of time. And, having a complete picture, we mark 1-2-3 setups, hooks (if any) and the potential for further price movement.

Finding the Best Trend Depending on the Timeframe

How to determine if a trend is good? How to quickly and easily determine the timeframe, which is most interesting when trading using the Ross technique.

Simply put, there should be a good growth, then a pullback of no more than 3 bars, possibly with the formation of RHR and a break of RH. If we see choppy market, a bunch of dojis, inside bars, incomprehensible moves; this timeframe is not quite well chosen.

In particular, on GBPAUD a good timeframe can be seen on the 4 hourly timeframe, but on the hourly one the same trend does not look so good. Let's see:

4H

1H

And it happens that on the hourly timeframe there is a perfect trend, but when you switch to the 4-hour or daily timeframe, there are confusions. The same is true for 15 minutes, and so on. The main thing is to learn to determine whether a trend is ""nice"" or not by just looking at it. It is also very useful to look at the previous trends on the selected timeframe. History repeats itself and trends can behave similarly precisely because there will be support and resistance lines in approximately the same places.


RHs Filtering Methods

Here we come to one of the most difficult parts of the Ross trade. RH filtering is something you need to pay the most attention to. Even if you don't trade Ross, but know his filtering methods - it helps a lot in terms of identifying such moments, what we call "false breakout", "collecting stops" and so on.

Support and resistance line
Trend line
A price break or gap
Accumulation

The first and easiest way of filtering is, of course, in support and resistance lines. If we see that the hook hit the monthly resistance when trading on a 4 hourly timeframe, it is a good reason to think about whether a trend change will follow. But on the other hand, a breakout of the maximum of such a hook combined with strong resistance can be a good buy signal. Also, if the trend is long enough and the hook is formed at the resistance level, there is a good chance that the trend will turn sideways.

The next way of filtering is the trend line or channel lines. They are good for determining the end of a pullback in a trend and the formation of reversal setups.

This post is a simplified representation of Joe Ross's strategy, there are so many nuances, subtleties, and filters. Ross in his books shows combinations of his hooks with such indicators as Stochastic, ATR, Bollinger Bands, moving averages and much more. In practice, as soon as there is some "confusion" of the price, which is out of the framework of the normally current trend, you should put this tactic aside and use other ones. Hooks work exclusively in a trending markets.

Traders, If you liked this educational post, give it a boost and drop a comment.