You do not wait to confirm your buy or sell signals with reversal candlesticks…. So if price hits the trendline and bounces back, you make money, if not you lose money.
When I trade using this method, I put a much larger stop loss because I have no reversal candlestick or price action to give me an indication yet as to a suitable place where I can place my stop loss. For example after I enter a sell trade with a 40 pips stop loss and later I see a shooting star bearish reversal candlestick form after price hits the trendline, I will then move my stop loss to at least pips above the high of that shooting star reversal candlestick. So your initial stop loss must be considered in light of these two factors mentioned above as well as how much percentage of your trading account you are going to risk in each trade you place.
You will notice that there will be times when price hits a trendline and immediately bounces back…it bounces back that quickly that profits do come VERY FAST! If price turns around at the exact price level where the trendline was hit and you execute a market order trade, you are really Buying at the very bottom or selling at the very top. Which means your trade will be in profit very quickly. There will be times when it will fluctuate a bit before price starts going your way so you just need to hang on and let the market play out.
The second advantages of this method is that if price hits the trendline and bounces away from it very quickly, you have the chance to move your initial stop loss and bring it to break even making your trade risk free. The further away price moves away from your trade entry price and in this case would be the touch of the trendline, the better it is for you as this will allow you to move your initial stop loss to break even with less chance of getting stopped out prematurely.
If you have a first trade that is totally risk free trade stop loss had been moved to break even , then what is stopping you from placing a second trade based on a reversal candlestick that you can see in the daily, 4hr or 1hr timeframe? Lets assume that price hits a falling trendline and bounces back down forming a shooting star bearish reversal candlestick and at its close, price was 40 pips away from the trendline it touched.
This also means that you are in profit by at least 40 pips. Which means you can move your stop loss to break even. Which means that trade is now a risk-free trade. The big question is: Thank you so much for your sharing. I have been learning a lot from your blog. Speaking of trading with multiple time frames, what I understand from your strategy is that you place your profit target with a larger time frame e.
Please correct me if I get it wrong. My question is that if I put a smaller stop loss with a lower time frame, let say with a 1-hour chart, will I get stopped out with major news release while swinging my trade since I try to target a larger profit with a larger time frame? Hi Peter, yes…set your profit targets based on where you think price can go based on the larger timeframe.
Yes you are right, the danger is always there when you set a smaller stop loss distance when a major forex news is about to be released so best to check forexfactory calendar that you are not trading during news time or if you still want to trade, increase your stop loss size to allow for that news release where spreads do increase.
You just immediately buy or sell at market. You just press the buy or sell button when price the trendline. The initial stop loss is not fixed and can vary a lot between: Prev Article Next Article.More...