Hello Traders, I’m Mani and I’m the writer of Trade 77 section, please follow me on twitter for further updates.
I’m about to show you a price action strategy that is completely profitable and useful.
All the methods we use in Winners Edge Trading involved price action techniques and we believe that the best indicator every trader has got in his or her Forex journey is the price action.
Let’s get started and learn another great method of trading:
Figure below shows an example of a pennant formation in EURUSD pair:
I like to call these formations “Silence before Shout”. Pennants involve a triangular consolidation and they are much like a symmetrical triangle, but shorter in duration.
Before formation of a pennant we must have a sharp move in the pair, a long candle that is called “Flagpole” and after that sharp move exchange rate consolidates into a pennant.
The strategy here is to calculate the range of the flagpole, in this example we can see that the flagpole has 187 pips from 1.2845 to 1.3032.
Next phase is to calculate 10 percent of that range, here it is 18.7 pips and we can round it to 19 pips.
We’ll put a pending order just 19 pips above of the flagpole high (in case a bullish move) and our stop should be 25 percent of the flagpole range which is 47 pips here.
Our first profit target would be 47 pips in order to have 1:1 risk reward ratio and after price reached this target we are going to close half of our position and move our stop to break even for the rest.
Our second profit target is exactly equal to the flagpole range, here we have got 187 pips range and then second target is 187 pips fom the flagpole high, 1.3032 + 0.0187 = 1.3219.
Flag formations are very similar to pennants, in that both begin with a sharp move (called flagpole) followed by a period of consolidation.
Both are continuation patterns indicating that the most likely resolution of the consolidation will be a breakout in the same direction as the flagpole.
Pennant consists of two lines that slope toward each other, while a flag consists of two parallel lines that slope away from the direction of the flagpole.
Our entry points, stop and profit targets are the same as the strategy we use for pennants.
Here there is an example of flags:
Market has got some times that I call them “Silent Times”, if a breakout were to occur late in the Asian session or late in the U.S. trading session, that breakout would be considered suspect.
When we have got low volumes then do not trust breakouts.
Some traders will get the position when pennant or flag is broken, these impatient traders would make a mistake; if the exchange rate escapes from the flag or pennant formation but fails to clear the top of the flagpole, there is no reason to believe that the trade should be successful.
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