Price Action Strategy In Forex Trading

You are hither: Home / Trading Setups / Forex Toll Action Re-Entry Trading Strategy

Re-entry trading is a high-probability trading concept in my trading course. Information technology is a simple but powerful concept that works in all markets. In this article, you lot will learn how to use it to improve the odds of your price pattern setups.

Specifically, we will focus on examples from the currency (forex) futures markets. Currency futures markets mirror the price action in spot forex but are centrally-cleared and much more than regulated.

Now, what exactly is the re-entry strategy?

The Concept – What is Re-entry?

Expect at the figure below. Does the following experience feel familiar?

1. Later carefully studying the market bias, you took a long Pin Bar trade in the EUR/USD forex market place.
2. Accordingly, y'all placed a pattern end merely below the Pin Bar. (the lower dotted horizontal line)
3. The marketplace punched to a new high. Merely before long later, the market brutal and hit your stop-loss order.
4. Most immediately after you got stopped out, the market leaped upward once more.

If you were agile and warning, you lot might have re-entered the position.

If non, you might have been left standing in the dust while the market blazed alee without you.

In any case, y'all would exist frustrated and have suffered a loss despite getting the market direction correct.

Now, this is where a re-entry strategy comes in. Using a re-entry trading approach, we aim to:

• Skip the outset entry; and
• Enter the marketplace but upon the re-entry opportunity.

A re-entry opportunity oftentimes offers a higher probability of success.

Essentially, we maintain our trading premise only filibuster our trade entry.

Formulating a Re-entry Arroyo

A re-entry trading strategy takes the following form:

1. Find a trading setup with any price blueprint. Permit's call this the original setup.
2. Exercise not take the original setup.
3. Wait for the traders of the original setup to be stopped out.
4. Enter as the market reverses and resumes in the management of the original setup.

As the traders of the original setup were stopped out, they would need to seek a re-entry.

In other words, they were trapped out of their positions and had to re-enter. Ideally, their re-entries would help to push the market in our favor.

Trading Guidelines – Forex Price Activity Re-Entry

For simplicity, we will focus on a single price pattern, the Pivot Bar, equally our basis for re-entries for ease of discussion.

While the Pivot Bar is a popular toll activity pattern amid forex traders, feel free to supersede information technology with whatsoever other cost activeness pattern.

Long Re-Entry Trading Setup

Follow these steps:

1. Look for a bullish Pin Bar.
2. The next bar must trade above the high of the Pin Bar.
3. The market must then fall beneath the low of the Pin Bar (but not too far beneath).
4. Look to buy when the toll breaks above any bullish bar.

Curt Re-Entry Trading Setup

Follow these steps:

1. Look for a bearish Pivot Bar.
2. The next bar must trade beneath the low of the Pin Bar.
3. The market place must then rise above the high of the Pin Bar (but not also far higher up).
4. Look to buy when the price breaks below any bearish bar.

Explanation of Trading Guidelines

1. This is the original setup that we practise not accept.
2. This footstep observes that the original setup is triggered.
3. Here, the original setup fails, and its traders become stopped out. Withal, the price action surrounding that failure must not affect our trading premise or assessed market bias.
4. This last dominion offers confirmation that the stop-out was a false alarm, leading us to re-entry.

Trading Examples – Price Action Re-Entry

The re-entry method is a trading approach and non a mechanical strategy. Hence, it'due south best to appreciate how it works through examples.

In the examples that follow, the blue line is a 20-period exponential moving average (EMA).

The Pivot Bars shown are marked out with our Price Activeness Blueprint Indicator.

Example #1: Bullish Re-Entry

This is a 30-minute nautical chart of the 6E forex futures, which corresponds to the EUR/USD forex pair.

1. A bullish Pin Bar was bouncing off the EMA. It was a decent setup, only in our re-entry trading strategy, we would skip it.
2. As the market rose above the Pivot Bar, the traders who initiated their long positions got a nasty shock.
3. Two bars later, the market fell and hit the end-loss orders placed effectually the Pin Bar's low (a typical blueprint stop level).
4. The market place recovered quickly and offered a re-entry chance with a 2nd bullish Pin Bar. As re-entry traders, nosotros entered a long position equally the market broke above the Pin Bar'southward high.

After our entry, the marketplace rose with a firm thrust.

Example #2: Losing Trade

To dive deeper into the traits that make the re-entry method works, let's examine a losing trade.

This is an hourly nautical chart of the 6J forex futures, which corresponds to the JPY/USD forex pair.

1. A bullish Pin Bar was bouncing off the EMA after finding clear support around it.
2. The Pin Bar was triggered, and some traders went long. (non us)
3. Later rising above the terminal trend high, the market fell and hit stop-loss orders placed at the Pin Bar'southward low.
4. Every bit buying pressure emerged (lower shadows), nosotros bought as the market rose above a bullish Marubozu.
5. Nonetheless, the market meandered for a few hours earlier continuing its downward trajectory, resulting in a loss for the re-entry.

This losing trade (6J) has several stark differences from the winning instance (6E).

Starting time, the losing instance's re-entry occurred below the moving average. Information technology was a hint that the marketplace bias has inverse and was no longer bullish. On the other hand, the winning example's re-entry setup bar had the moving boilerplate's back up.

Second, in the 6J case, the original entry and the re-entry formed much further apart compared to the 6E example. This lack of proximity was a sign that our original trading premise (Pivot Bar with support) was no longer valid.

Third, the market hit a target projected from a triangle chart pattern (orange lines). Since the original setup coincided with the break-out of the triangle blueprint, the projected target held sway.

Later on the market hit the projected target, it's believable that some traders took their profits and closed their long positions. Information technology follows that when the market brutal, fewer traders were stopped out and trapped out. Hence, the re-entry arroyo was non platonic in this instance.

Case #3: Delaying Entry To Meliorate Certainty

The re-entry approach is particularly handy when you have a trading idea that requires further confirmation. Let's have a look at such an example.

This is a four-hourly nautical chart of the 6A currency futures, which corresponds to the AUD/USD forex pair.

1. The market was in a bull trend. Nonetheless, the whipsaw with expanded bar range created an erratic market place.
2. Hence, at this indicate, when a bullish Pin Bar formed, we were unsure if nosotros should trade it. In this instance, a re-entry approach proved helpful.
3. Instead of inbound with the Pin Bar, we waited and observed that the market hit the standard pattern terminate of the Pin Bar. Even so, the market did non continue falling.
4. Recognizing the fake alarm, we entered into a long position with this re-entry setup bar, with greater confidence than before.

Re-entry setups tend to work well when the original setup was barely stopped out, like in this example.

Important Notation

When a trade fails (gets stopped out), at that place are two possibilities:

1. Nosotros got the market bias wrong; or
2. We got the marketplace bias correct, but the timing was wrong.

The re-entry approach works best when nosotros meet the 2d scenario.

Hence, when you utilize the re-entry method, it'due south critical to ensure that your trading premise is intact upon re-entry. If the market has inverse and then much that your original premise is no longer intact, avoid the re-entry.

About importantly, empathise that the re-entry approach does not remove the need for sound market analysis in the first place. Information technology merely helps with finding a more than reliable entry timing.

Conclusion – Forex Price Activity Re-Entry Strategy

Overall, the re-entry trading method presents a simple way to enhance the probability of any price action design. More often than not, good re-entries occur soon after the original setup.

The re-entry trading strategy is also versatile as you tin apply whatever price design as its basis.

For instance, in my trading grade, I discussed the concept of re-entries with the patterns taught in the grade, including the Trend Bar Failure and the Anti-Climax design. Even so, you can certainly employ the aforementioned idea using the cost patterns you are already familiar with.

Furthermore, you can accept this concept to markets across forex.

All it takes is patience. Skip the original entry and expect for the re-entry.

Like many other trading methods, it is non mechanical. It is a discretionary approach to trading that encourages prudence and patience. Always consider the market bias before using the re-entry trading strategy. Do not apply it in isolation.

Nonetheless, using a re-entry trading strategy in forex trading has its trade-offs.

The principal drawback is fewer trading opportunities. At times, the marketplace takes off spectacularly without offering a re-entry opportunity.

In such cases, nosotros miss out on the profits. Merely this is the cost we pay for a meliorate timing device.

If you tend to overtrade, I strongly recommend that you lot try out this re-entry trading method. It offers a trading technique that lowers merchandise frequency with a potential higher probability of success.

For more specific tips on finding the all-time re-entries, check out Mean solar day Trading with Cost Activeness.

The article was first published on 13 July 2014 and updated on 21 January 2021.

Source: https://www.tradingsetupsreview.com/forex-price-action-re-entry-trading/

Posted by: powerhazinge.blogspot.com

Share this post