Understanding the Concept of Lowest Low Value
Before diving into specific trading strategies, it’s essential to explain what is meant by the Lowest Low Value (LLV). The Lowest Low Value refers to the lowest price point (typically the low of a price bar) that a given asset reaches over a specific period. This concept can be applied to various timeframes such as hourly, daily, weekly, or even monthly charts. Traders often calculate LLV for a particular “lookback” period, such as the lowest low over the past 14 days (LLV(14)) or the lowest low over the last 20 hours (LLV(20)).
For example, if we are calculating the LLV over a 20-day period (LLV(20)) for a stock that recorded the following lows in the last 20 days:
- 25.50
- 24.00
- 24.75
- 26.10
- 23.90
- …
The Lowest Low Value in this period is 23.90. This value can be crucial in understanding potential support levels, breakouts, and momentum reversals.
Importance of LLV in Trading
LLV plays a pivotal role in identifying key support zones. When a market is testing a historical low (LLV), traders often look for signs of price stabilization or a potential breakout to capitalize on trends. LLV can also indicate oversold conditions, and in conjunction with other indicators, it may signal when the asset is set to reverse its downward trend.
The Lowest Low Value is a versatile concept that works well across asset classes like stocks, forex, commodities, and cryptocurrencies. Its usefulness extends to various trading styles—scalping, day trading, swing trading, and even long-term investing.
Effective Trading Strategies Using the Lowest Low Value (LLV)
1. Breakout Trading Strategy
Overview: Breakout traders often look for instances when an asset breaches significant support or resistance levels. The LLV can serve as a strong indicator for determining a breakout when the price drops below the previously established LLV.
Strategy:
- Entry: When the price of an asset breaks below the LLV over a defined period (e.g., LLV(20)), it signals a potential downward breakout.
- Confirmation: Traders often wait for confirmation in the form of higher volume and sustained movement below the LLV.
- Exit: Place stop-loss orders just above the LLV to minimize risk and use trailing stops to capture profits if the breakout leads to a sustained downtrend.
Example: In a bearish market for a stock, say “XYZ” reaches an LLV of $100. If the price drops below $100 with significant volume, a trader might enter a short position, expecting a further decline.
Application: Works well in both trending and volatile markets. Short-term traders (scalpers) may apply it to hourly or 15-minute charts, while swing traders could use daily charts.
2. Support Bounce Trading Strategy
Overview: One of the most common ways to use LLV is to identify support levels where prices are likely to bounce upward. After reaching a particular low, the price may exhibit a strong bounce or reversal, offering long-entry opportunities.
Strategy:
- Entry: Identify the LLV of the past 14 or 20 days. If the price approaches this level, look for bullish reversal signals such as a bullish candlestick pattern (e.g., hammer or engulfing pattern).
- Confirmation: Volume increases and momentum indicators (like RSI or MACD) confirm the upward move.
- Exit: Set a target based on previous resistance levels, and place a stop-loss just below the LLV to manage risk.
Example: A currency pair such as EUR/USD drops toward its LLV of 1.10. Once the price nears this level and bullish signals appear, a trader might go long with a stop-loss below 1.10 and a target of 1.12, where previous resistance lies.
Application: This strategy is effective in range-bound markets where price frequently tests support and resistance levels. It works best on daily or 4-hour charts for swing traders and shorter timeframes for day traders.
3. Trend Following with LLV
Overview: In strong trending markets, LLV can help traders determine pullback opportunities within a prevailing trend. In an uptrend, traders might look for a new LLV that forms during a pullback, providing a buying opportunity once the pullback concludes.
Strategy:
- Entry: During an uptrend, identify when the price makes a pullback and establishes a new LLV. Enter a trade as the price begins to rise again.
- Confirmation: Combine the LLV with a trend indicator such as a moving average (e.g., 50-day moving average). The price staying above the moving average confirms that the uptrend remains intact.
- Exit: Use a trailing stop to ride the trend, exiting when the price significantly deviates from the trendline or moving average.
Example: In a stock like “ABC”, after a sustained uptrend, the price pulls back and hits an LLV of $80. Traders would wait for a reversal to start buying again, using a stop-loss below $80 and aiming for further upward movement.
Application: This works well in long-term trending markets such as bull markets in commodities (e.g., gold) or equities. It’s best suited for daily and weekly charts for swing or position traders.
4. Reversal Trading Strategy (LLV Divergence)
Overview: Divergences between the price and momentum indicators like the Relative Strength Index (RSI) can provide powerful reversal signals. A bullish divergence occurs when the price hits a new LLV, but the RSI or MACD fails to follow suit.
Strategy:
- Entry: When the price makes a new LLV, but the RSI forms a higher low (indicating bullish divergence), enter a long position.
- Confirmation: Combine with candlestick patterns or volume analysis to confirm the reversal.
- Exit: Set a target at the next resistance level, with a stop-loss below the LLV.
Example: In a stock, the price drops to a new LLV of $50, but the RSI doesn’t make a new low, indicating that the downward momentum is weakening. This divergence might signal that a reversal is imminent, and traders could buy into the stock with an eye on an upward move.
Application: Useful in both equities and forex markets. This strategy is effective on daily, weekly, or even monthly charts for long-term investors. Shorter timeframes like hourly charts may also work for day traders.
5. Trailing Stop Strategy Using LLV
Overview: LLV can serve as a dynamic trailing stop in volatile markets. As the asset’s price moves higher, traders adjust their stop-loss levels based on the new LLV over a specific lookback period, locking in profits while limiting downside risks.
Strategy:
- Entry: Enter a long trade in an upward-trending market.
- Trailing Stop: As the price moves higher, continually adjust the stop-loss to the new LLV of the past 5, 10, or 20 bars.
- Exit: The trade exits automatically once the price drops below the LLV, protecting profits.
Example: A futures trader goes long on crude oil as it trends higher. Using an LLV(10), they adjust their stop-loss daily to the lowest low of the past 10 days. If the price drops below that LLV, they exit the trade, securing profits from the upward movement.
Application: Effective in fast-moving, trending markets like commodities or cryptocurrencies. Traders use it on daily or 4-hour charts for longer trades, but it can be applied to 1-hour charts for short-term strategies.
6. Channel Trading with LLV and HHV
Overview: By combining the LLV (Lowest Low Value) with HHV (Highest High Value), traders can create a price channel that indicates the upper and lower bounds of a trading range. This approach is useful for identifying overbought or oversold conditions.
Strategy:
- Entry: Buy near the LLV and sell near the HHV.
- Confirmation: Use momentum indicators like Stochastic Oscillator to confirm overbought/oversold conditions.
- Exit: Set profit targets near the HHV and stop-loss orders just below the LLV.
Example: In a range-bound forex pair like GBP/USD, a trader might buy when the price touches the LLV(20) and sell when the price reaches the HHV(20), assuming no breakout occurs.
Application: Ideal for traders operating in sideways or non-trending markets. It works well on 4-hour, daily, or weekly charts for swing traders.
7. Mean Reversion Using LLV
Overview: Mean reversion strategies assume that prices will revert to their average value after reaching extreme lows or highs. LLV is often used as a threshold to identify when prices have reached an extreme low, signaling a potential reversal back toward the mean.
Strategy:
- Entry: Buy when the price hits a new LLV and shows signs of reversing toward its moving average (e.g., 50-period MA).
- Confirmation: Use oscillators like RSI to confirm that the asset is oversold and likely to revert.
- Exit: Take profits as the price approaches the mean (moving average).
Example: A mean-reversion trader might buy a stock that has dropped to its LLV and is significantly below the 50-day moving average, expecting it to revert to the mean.
Application: Particularly effective in volatile but non-trending markets. Use it on daily or weekly charts for swing trades.
Conclusion
The Lowest Low Value (LLV) is a powerful tool that can be incorporated into various trading strategies across different timeframes and market conditions. Whether you’re trading breakouts, reversals, trends, or channels, LLV helps identify key price points that traders can use to enter, exit, or protect trades. By integrating LLV with other technical indicators such as moving averages, volume, or momentum oscillators, traders can build robust strategies that capitalize on price movements while managing risk effectively.