I'm going to teach you a highly profitable forex strategy in five easy steps Trade Room Plus.
com How many times have you taken a breakout trade where the market enters a new range on the forex markets only to have it come back in to the previous range and put you in a losing position? These false breakouts, or so-called 'fakeouts' happen all the time on the FX markets.
This is what I'm talking about.
The market enters a new trading range, it tricks you to get long, and then enters the previous trading range becoming a false breakout or a fake out.
My job today is to show you how to take advantage of these 'fakeouts' so you can make some great profits from those moves.
And of course, as always, I'm going to be showing you a live trade example that we took recently in our trade room to demonstrate how to trade this strategy properly.
Step 1: Identify support and resistance.
ow support and resistance levels should be very, very obvious.
The exercise always bang on about is take a blank chart and mark up the support and resistance levels.
Here is a Cable, the pound dollar Forex pair, with support resistance marked up on a daily time frame.
Now for a purposes of our trade the level were interested in was the low of 2019.
So we have that marked up and that's a level of interest for us when the price action comes to it.
Step 2: Wait for a break of a level.
We cannot have a false breakout until the market breaks above a resistance level or below a support level.
Looking down on the hourly time frame on our cable example, our pound/dollar example.
We can see the previous 2019 low marked up by this blue horizontal line.
Now the price action comes down to it and it starts to break below it.
It starts to give us a false breakout.
Now another rule we need to implement is we want the market to move beyond the level by at least 20 or 30 pips.
It depends on the currency pair.
It depends on the volatility.
But at the moment we wanted level breached by 20 or 30 pips.
As we can see with the 7am candle on the 17th.
That met this criteria by going beyond the level at least 20 pips.
However, whilst the market is below this level we do not take a trade.
For the purposes of this trade, whilst the market is below the support level, we do not take a trade.
Because if the market does go on to breakout we don't want to be on board losing trade If it does go on to break out without us, then sobeit, we accept it.
We're looking to fade this trade.
We're looking to trade back in the range, if the market doesn't set up that criteria we do not take a trade.
Step four: Placing an entry.
So once we're starting to see this trade set up, how do we actually structure our orders around it? It's very, very easy to look at trades, look at the markets and say, 'Well this may happen that may happen', but actually wrapping around a plan and executing that plan correctly and sticking to the plan – which often is the downfall of traders not sticking to the plan – is a lot more difficult.
So here we wanted our entry obviously back in the previous range.
So above the previous support level of 2019, because it's a 'fakeout', we need to be having our entry back in the previous range.
So we placed our entry here.
This orange line at 1 spot 2 4 2 4 that was just above some of this overnight noise.
So if the price action came back into the previous range, started to 'fakeout', then we were going to get long from this point here.
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Step four: Placing our stop loss.
Now the great thing about this training strategy is it gives you a very, very clear place to put your stop loss, to put your invalidation.
Some people don't trade without stop losses.
Some people will tell you not to place stop losses.
Don't listen to them.
Without stop losses, you can't effectively position size.
Okay, some professionals may be able to soft stops where take manual losses and have other complex strategies, but you as a retail trader should always use a stop loss.
I always use a stop loss and it's created success for me.
Now, we can see here We have our low from this hourly 7:00 a.
Candle that we looked at earlier.
So we're going to place a stop just below that low.
If the market does intend to break out, and does make a new low, then we don't want to be on board with the trade anymore.
And what you'll often Find with these trades is you can have quite tight stop losses.
So a 30 or 40 pip stop on occasion.
So if you do get a nice swing, a nice 'fakeout', then you can have a really strong risk reward strategy you think about how many of these you can potentially take a year, particularly on a daily time frame.
You will get on board of some monsters that will give you a fantastic risk / reward.
So remember always place you stop just below the low or just above the high of the 'fakeout'.
Depending on whether you're going to be trading short or long.
Step 5: Taking profit.
Now what you'll often find with these trades is there is a swing high to a swing low or visa-versa.
That means when you have an obvious swing high to swing low, you can pull a Fibonacci retracement That is the most obvious way to use a Fib.
It's the way that we use them time and time again.
Nice obvious swing levels.
Pull the 100% down to the nought percent and then you'll see your respective retracements.
Now for the purposes of this trade we will always take 50% profit at the 50% Fibonacci retracement.
Now that means we don't close our entire position.
Because if we leave 50% of our trade running, that gives us an opportunity to get on board at a large swing trade.
That's the best way, in our view to get on board or swing trades, is to take 50% at the 50% fib, and then leave the remainder running in case the move does become a really big one.
Step one: identify support and resistance Step 2: Wait for the break of the level.
Step 3: Place your entry.
Step 4: Place your stop loss Step 5.
5 simple steps to a highly effective strategy now.
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