You may have seen something similar to this before and I apologise if it covers some aspects of methods already described on this forum - I do not mean to detract from what is already explained by others. I would simply like to describe my recent “light bulb” experience and hope it is useful to us all.
This method uses Price Action and Momentum to identify a potential trade and place pending orders at appropriate levels. I also use Daily and H4 timeframes because it suits the time I have to spend at the computer screens.
METHOD
- On the Daily timeframe identify an engulfing bar. For the purposes of this method an engulfing bar is one where the open and close engulf the open and close of the previous bar. Obviously you wait until the bar closes and the next bar starts before this is established.
- Having identified an engulfing bar, highlight it’s open and close. I do this by drawing a rectangle from the open level to close level, as shown in the attachment diagram Daily TF (grey rectangle).
- Draw a horizontal line at the high or low of the bar, depending if it is an engulfing up or down bar. Diagram shows an engulfing down bar and horizontal line at low (orange line).
- Having completed steps 1 to 3 move to the H4 timeframe (attachment diagram H4 TF).
- On the H4 timeframe wait for a bar to close below the horizontal line drawn in step 3 and place a Pending Sell Stop at this point. (Opposite for engulfing up bar).
- Set a Stop Loss about 5 pips above the previous swing high (or below the swing low if an engulfing up bar).
- Ideally set a Take Profit at 2 times the SL value in pips (or at least 1:1). Example shown SL=48 pips therefore TP=96 pips.
- If you are feeling confident set a second pending order with the same SL and move to Break even when the other orders TP is hit and let it run! (attachment diagram H4 Let it run)
There will, of course, be times when this does not work for various market reasons but backtesting the major pairs seems to have a good strike rate and some nice pips. Enjoy.
AndyG