HHLL Trading Strategy — Backtest Findings

There are certain trading strategies that you can trade based on price action alone. One of them is the HHLL trading strategy. You may be wondering what the HHLL trading strategy is. Here you go:

The HHLL trading strategy is a price action (based on price movements) reversal strategy that involves buying an instrument after the price has made a lower low and a higher high in a downtrend and comes back to the initial low. Similarly, a selling opportunity arises when the price, in an uptrend, makes a higher high and a lower low and then comes back to the initial high.

In this post, you will get acquainted with the HHLL strategy. We make a backtest at the end of the article.

Let’s dive in.

What is the HHLL strategy?

The HHLL strategy is a price action reversal strategy; which means, it is based on studying the price movements and aims to spot the reversal of the trend. In an uptrend, it seeks to spot a selling opportunity, while in a downtrend, it aims to spot a buying opportunity.

The strategy involves buying an instrument after the price, in a downtrend, has made a lower low and a higher high and comes back to the initial low. Similarly, it spots a selling opportunity when the price, in an uptrend, makes a higher high and a lower low and then comes back to the initial high.

To understand the strategy, you need to understand how to use price swings to read the direction of the trend. To have an uptrend (bullish trend), there should be a series of higher swing highs and higher swing lows. On the other hand, a downtrend (bearish trend) consists of a series of lower-swing lows and lower-swing highs. The HHLL strategy tries to spot when that series is broken, indicating a potential trend reversal.

For the short term, several lower lows usually mean an opposite reaction is imminent, while several higher highs might signal a short-term top. Please read our take on this:

• Lower highs and lower lows pattern (trading strategy)
• Higher highs and higher lows pattern (trading strategy)

HHLL meaning

As you can infer from our explanations so far, HHLL means higher high and lower low. For example, let’s say we have an uptrend that got to a high (H), then followed by a correction to a low (L). After that, the price makes a higher high (HH), and then we notice a breakdown of the trend structure, with the price making a lower low (LL), we will begin to think of a potential trend (bearish) reversal.