The first element we want to see for our simple trading strategy is that we need to see price moving into overbought territory. Any swing trading strategy that works should have this element incorporated.
Note The preferred time frame for this simple swing trading strategy is the 4h time frame, but the strategy can be used on the daily and weekly time frame as well.
Step 2 Wait for the price to Break below the Middle
After we touched the upper , we want to see confirmation that we indeed are in overbought territory and the market is about to reverse. The logical filter, in this case, is to look after a break below the middle .
This break below middle is a clear signal in the shift in market sentiment.
We at Trading Strategy Guides don’t trade breakouts without disseminating weather or that there are real buyer/sellers – in our case, sellers – behind the breakout which brings to the next step of our simple swing trading strategy.
Step 3 Swing Trading Indicator: The Breakout Candle needs to be a Big Bold Candle that closes near the Low Range of the . Sell at the Close of the Breakout Candle
So far our favorite swing trading indicator has correctly predicted this sell-off, but we’re going to use a very simple based method for our entry trigger. In this regard, we want to see a big bold candle that breaks below the middle .
The second element of this based method is that we need the breakout candle to close near the low range of the . This is indicative of strong sellers, which really want to drive this currency pair much lower.
Step 4 We hide our Protective Stop Loss above the Breakout Candle
The breakout candle has a lot of significance because we’ve used it in our based entry method. We assumed that this candle shows the presence of real sellers in the market. If the high of this candle were to be broken, it’s clear enough that this is simply a fake breakout as there are no real sellers.
Step 5 Take Profit once we break and close back below the middle or with a 3 to 1 risk ratio.
In this particular case we’re looking at a short trading example. So, if the price breaks back above the middle Banks it’s time to get worried and take our profits as it can signal a reversal or if our 3 to 1 risk ratio has hit.
The reason why we get profit here is quite easy to understand as we want to book the profits at the early sign the market is ready to roll over.
Note The above was an example of a SELL trade. Use the same rules – but in reverse – for a BUY trade.
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