Don’t make things more complicated than they need to be. This setup is simple and it appears time and time again.
- Sell a rally to resistance in a downtrend
- Buy a fall into support in an uptrend
Here’s one recent downtrend example.
First, let’s look at the longer-term chart, above. This one is the five minute chart, but the concept applies to any timeframe (whatever you want to call longer-term). The important information on this chart is the trend, which is clearly down. To the left of point A we have a downtrend pullback, which interestingly forms a short-term ledge of support, shown by the horizontal line. The shooting star though shows evidence of higher resistance, leading to a breakout below the ledge two candles after the shooting star. Certainly you could take the entry on this break down – but that’s not the one I’m showing you today – the one we’re looking at is point A.
Point A shows a rally back to the previous swing high, or more specifically in this case the point of breakout at the lower range of the swing high.
Moving on to the 1 minute chart for a more refined look:
Exactly as described – price breaking below the area of short-term support (now resistance) and rallying back to the point of breakout, offering a low risk entry at point A in the direction of the larger timeframe trend.
The first target is the previous swing low (approx 20 pips), with any subsequent parts being trailed.
No indicators required.