Stop and Go Retracement Forex Trading Strategy

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Stop and Go Retracement Forex Trading Strategy

Trading online using price charts and looking at different forex pairs, stocks, commodities or other trading instrument may sound sophisticated. However, trading online is still the same as trading physical items like cars, houses or jewelries. The difference is that we are trading at a much faster rate, we do not need physical items in hand for us to transact, and that the world is the market that we deal with.

Since trading online and trading physical items or properties should be technically the same, it is logical for us to approach the forex market the same way we do when we are buying and selling physical items. Think of yourself as someone who flips houses for a living. You buy a house and sell it at a higher price. The first thing that you would do is assess the market if property prices are going up or down. If it is going up, then you would be looking to make a quick flip. You would not buy the first house that you see right? You would be looking for someone who is willing to sell his or her house at a price that is a bit lower than what the market value is. You would not even buy it right away if you see one. You would be haggling for a lower price until the seller offers it at a price you like. As soon as you buy it, you look for an opportunity to sell at a higher price before the market starts to drop. The same applies in forex trading. We identify the trend bias and look for retracements, which is much like a discount.

Stop and Go Retracement Forex Trading Strategy is a strategy that trades in a trending market condition. However, it also waits for retracements in order to get a better price.

BBands Stop v1

BBands Stop is a custom trend following indicator developed in order to help traders identify the direction of the trend.

It is a simple indicator which plots a line opposite the direction of the trend. If the trend bias is bullish, the indicator will plot a chartreuse line below price action. If the trend bias is bearish, then the indicator will plot an orange line above price action.

Traders could use it as a trend direction filter, a trend reversal signal or a basis for stop loss placement.

As a trend direction filter, traders could use another short-term trend entry signal to enter the market while trading in the direction of the BBands Stop trend.

As a trend reversal signal, traders could enter the market as the BBands Stop line shifts and its color changes.

As a stop loss basis, traders could place the stop loss beyond the line opposite the direction of the trade.

EMA Crossover Signal

EMA Crossover Signal is an entry signal indicator based on the Exponential Moving Average (EMA).

The crossover of moving averages are great trend reversal indications. It allows traders to visually identify if the market has already reversed. However, most moving averages suffer from two disadvantages, which is that they are usually lagging and are susceptible to market noise. The EMA was developed in order to smoothen out the moving average line as well as make it more responsive to price changes.

The EMA Crossover Signal indicator is an indicator that pinpoints the specific crossover points on the chart. It plots an arrow pointing up if it detects that the underlying moving average setting has reversed upward, and plots an arrow pointing down if it detects the moving averages crossing over downward.

The indicator is also customizable. It allows traders to adjust the periods used for the moving averages to suite the preference of individual traders.

Trading Strategy

This trading strategy trades on trending market conditions while waiting for retracements. It uses the BBands Stop indicator and the EMA Crossover Signal indicator in order to accomplish this.

The BBands Stop indicator is used to identify the trend direction. This will be based on the location of the BBands Stop line and the color of the line. It is also used as a dynamic support or resistance line where we will be waiting for retracements.

As soon as we identify a trending market, we would wait for price to retrace towards the BBands Stop line. Then, we wait for price to bounce off it which should be followed by the EMA Crossover Signal plotting an arrow pointing the direction of the trend. This arrow will be our entry signal.

Indicators:

  • BBands_Stop_v1
  • EMA Crossover Signal
    • Faster EMA: 5
    • Slower EMA: 10

Preferred Time Frames: 15-minute, 30-minute, 1-hour and 4-hour charts

Currency Pairs: FX majors, minors and crosses

Trading Sessions: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • The BBands Stop line should be below price action and should be color chartreuse.
  • Price action should be making higher swing highs and swing lows.
  • Price should retrace towards the BBands Stop line.
  • The EMA Crossover Signal indicator should plot an arrow pointing up.
  • Enter a buy order on the confirmation of the conditions above.

Stop Loss

  • Set the stop loss below the BBands Stop line.

Exit

  • Close the trade as soon as the EMA Crossover Signal indicator plots an arrow pointing down.

Stop and Go Retracement Forex Trading Strategy

Stop and Go Retracement Forex Trading Strategy 2

Sell Trade Setup

Entry

  • The BBands Stop line should be above price action and should be color orange.
  • Price action should be making lower swing highs and swing lows.
  • Price should retrace towards the BBands Stop line.
  • The EMA Crossover Signal indicator should plot an arrow pointing down.
  • Enter a sell order on the confirmation of the conditions above.

Stop Loss

  • Set the stop loss above the BBands Stop line.

Exit

  • Close the trade as soon as the EMA Crossover Signal indicator plots an arrow pointing up.

Stop and Go Retracement Forex Trading Strategy 3

Stop and Go Retracement Forex Trading Strategy 4

Conclusion

This trading strategy works very well when used in a trending market condition. This is because it takes trend into account while at the same time waiting for a reasonable price to enter the market.

It also provides traders trade setups with a decent potential reward-risk ratio, while at the same time being a high probability trade setup.

Traders who could identify the right market condition to trade this strategy could make consistent profits when the opportunity presents itself.

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