The “Head Fake”, Shelf Break & Retrace

By Michael Storm aka Robin Hood

Hi Folks, sorry its been so long since my last article but the trading room has grown and my first responsibility is to those traders that are now a member of our team. We sure do have some boring times. But they are followed by great times to and you have to be waiting for the right setups.  Here is an EXAMPLE of a few very common setups that happen just about every day and on just about any given currency pair.

15 Minute Chart  *Note Click on the Chart to Learn about our Premium Trading Room.

Please note that on the first chart you can clearly see a GAP, begging to be filled on the 15 min chart of the EUR/JPY. This got extended away from the MA’s and we were watching it to retrace. Note that it did not technically set up a 15 min sell setup right away. but made a bit of a shelf where the wicks are (this is more evidenced on the 5 min chart to follow) Then there was a surprise “squeeze” higher that looked like a breakout bar. But it SURE DIDN’T CLOSE THAT WAY! 🙂 This is a head fake, or a bull trap, if you will. It stopped a bunch of shorts out and faked others to get long…. then went SOUTH in a hurry. 🙂

We were waiting for the 124.90 level to break, where we all pounced upon it as a short, setting a stop over the 125.12 area.  It did not take long for this to go down 25 pips in a heartbeat (almost) at which time we closed it out. It did its job, and filled that Gap.  Then you can see it came up to the BOTTOM of that broken shelf and we got short again, same stop.  Yeah, it wiggled and jiggled for a while but once it broke the trendline on the 5 min with the WRB SELL SETUP, it crashed again to a very nice level.  It actually went further than I thought and I did not catch the entire run I only got about 22 pips of this, I think some of the others in the room held out a bit longer.  But wow, what a great trade it was.  Notice that it went right for the 200 period MA on the 5 min chart. Awesome.

Be on the lookout for head fakes aka short squeezes. Be on the lookout for shelf breaks, they are a great trade. And lastly be on the lookout for when things get way to far extended away from the MA’s… there is a powerful tendency to “snap back” over time, right back into them.  But be careful. the first sell setup often fails on a 5 min chart, so either wait for the second or build a position, but always adhere to a decent stop so you don’t get crushed.  This tendency to pull back into the moving averages has a very high probability of success ratio.

Hope this is a help to some… Please be patient and wait for the quality setups to occur.  Till next time, Happy trading !

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