Recognising the swing patterns found on the forex market, is one of the key knowledge elements, for any forex trader. Position entry: We draw a pivot line (support / resistance line) in the chart. We do so at the latest max / min. We are looking for the local minimums in the down trend, and local maximums at the up trends.
Once price breaks this line of last extreme and price candle closes beyond it, we enter the position in the direction of the breakout.
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To do so with accuracy, we use pending orders, that are placed at the max/min after correction (once the price wave becomes visible). Fractals – this forex indicator is extremely useful tool in determining local extremes.
Standard approach: Take profit should be equal to the wave size. Stop loss should be placed on top (sell), bottom (buy) of the wave. The risk reward ratio is therefore 1:1.
Strong trending market adaptation. Stop loss remains unchanged and placed beyond the signal wave. A TP should be double the size of the wave. A trailing stop can be also used. Risk reward ratio improves to 1:2, however losing trades will become more frequent.
Timeframe: This forex strategy can be used on any timeframe and any currency pair.
Tip: Great tool to determine max / min and wave structure on chart is forex indicator fractals.