The Pendulum Strategy: A Comprehensive Guide

Introduction

The Pendulum Strategy, developed by renowned trader Mario Singh, is designed to help traders capitalize on ranging markets. Unlike trending markets, which occur only about 30% of the time, ranging markets offer ample trading opportunities. This strategy focuses on buying at support and selling at resistance within an established range, making it a perfect fit for markets moving sideways.

Concept

Markets trend only about 30% of the time, meaning they move sideways the remaining 70% of the time. The Pendulum Strategy is specifically tailored to these non-trending periods. By targeting price swings back to a mean level, traders can profit from the price bouncing between support and resistance levels within a range. This strategy is ideal for traders looking to make the most of slow market conditions.

Applications

Originally designed for forex majors and other popular currency pairs, the Pendulum Strategy is applicable to any market on any timeframe. While it works particularly well on the 1-hour and 4-hour timeframes, it can be adapted to other timeframes as needed. With proper risk management and thorough market study, including backtesting, the Pendulum can form the basis of nearly any range trading plan.

Why Trade the Pendulum?

• Opportunities in Slow Markets: Provides trading opportunities even when the market is not trending.
• Buy and Sell Signals: Generates both buy and sell signals, allowing for flexible trading.
• Fixed Risk Allocation: Ensures a fixed risk for each trade, aiding in effective risk management.
• Abundant Trade Setups: Produces numerous trade setups each day, increasing the potential for profit.

Trading Guide and Strategy Rules

Setup

1. Identify Support (Swing Low): Locate the lowest point in the current range.
2. Identify Resistance (Swing High): Locate the highest point in the current range.
3. Calculate the Trading Range: Determine the range by subtracting the support level from the resistance level.

Trade Execution

Buy Setup

1. Entry: Buy on a 10% bounce from the support level.
2. Stop Loss: Place the stop loss beneath the support level at a 1:1 risk-to-reward ratio. This ratio is calculated based on the difference between the buy entry and the support price.
3. Profit Targets: Set profit targets above the buy entry at 50% and 90% of the calculated range.

Sell Setup

1. Entry: Sell on a 10% pullback from the resistance level.
2. Stop Loss: Place the stop loss above the resistance level at a 1:1 risk-to-reward ratio. This ratio is calculated based on the difference between the resistance and sell entry price.
3. Profit Targets: Set profit targets below the sell entry at 50% and 90% of the calculated range.

Example

Let’s consider both sell and buy examples to illustrate the Pendulum Strategy in action:

Buy Example

• Support Level: 1.0840
• Resistance Level: 1.0876
• Range: 1.0876 – 1.0840 = 0.0036 (36 pips)

1. Entry: Buy at 1.0844 (10% bounce from 1.0840 support level).
2. Stop Loss: Place at 1.0816 (1:1 risk-to-reward ratio).
3. Profit Targets:
   • 50% of the range: 1.0858 (14.6 pips above the entry).
   • 90% of the range: 1.0872 (29.4 pips above the entry).

Sell Example

• Support Level: 1.0780
• Resistance Level: 1.0887
• Range: 1.0887 – 1.0780 = 0.0107 (107 pips)

1. Entry: Sell at 1.0876 (10% pullback from 1.0887 resistance level).
2. Stop Loss: Place at 1.0953 (1:1 risk-to-reward ratio).
3. Profit Targets:
   • 50% of the range: 1.0833 (43 pips below the entry).
   • 90% of the range: 1.0791 (85 pips below the entry).

Conclusion

The Pendulum Strategy by Mario Singh is an effective method for trading ranging markets, providing ample opportunities for both buy and sell trades. By focusing on price swings within an established range and employing strict risk management, traders can capitalize on sideways market movements. Whether you’re trading forex majors or other instruments, the Pendulum Strategy can be a valuable addition to your trading arsenal.