In this lesson we will provide you with further understanding of trade entries and exits as this is the crucial aspect of placing good trades. At the end of this lesson we will describe how the market does not always behave the way you want and we will go through a mental process that should open your eyes about what trading is really all about.
Advanced Price Action Entries
Once a price action signal has been printed (i.e. the pin bar), I typically like to use a Fibonacci retracement level to enter a trade.
The reason why I do not enter trades on the open of the next candle after a pin bar is because price will most likely re-test the value area that was previously rejected as a confirmation that price level will hold up by the Agents.
Pin Bar Entry Rules
- Spot pin bars on daily, or four-hour charts;
- You should see several down- or up-bars before the pin bar;
- The open and close of the pin bar should be inside previous bar;
- The pin bar punctures through recent price action;
- The nose of the pin bar should touch a value area.
Advanced Pin Bar Fibonacci Entry Strategy
- Once a pin bar has been printed, place the Fibonacci retracement levels on your chart;
- The 23.6%, 38%, 50% retracements are good entry points;
- Depending on desirability of setup, place an entry limit order on 23.6%, 38%, or 50% retracement levels. Typically, the more obvious the signal, the lower the retracement level I would chose;
- Place a stop loss (SL) three pips below/above the pin;
- Place target orders at either 20ema, Fibonacci projections, or support levels (discretionary trading is involved);
- Orders should have a minimum 2:1 or 3:1 risk-to-reward ratio.
Below are a few examples of how to place entry trades with Fibonacci retracements on the charts. Although there is some discretionary trading involved in placing limit orders on the Fibonacci retracement levels, it is not a bad idea to place two trades on the right pin bar setup.
Proper pin bars are usually highly accurate trades and it could make sense to be placing two trades.
Advanced Pin Bar Trade Example
CHART: ADVANCED PIN BAR TRADE
After printing this pin bar on the chart above, the price retraced back to the 38% Fibonacci levels four times before shooting up higher to reach the major resistance level.
Enter and Exit Trades Like a Sniper
An important concept to learn in this section is that you make money on the entry, and not on the exit, of a trade. Just like with real estate, if you paid a high price for a house, how could you expect to make a good profit from flipping it?
Remember that our method in this course is not to buy and hold, but rather to profit from short-term price anomalies.
If, however, you did buy real estate at a high market price, of course you could still make a good profit, but that would most likely require a lot of effort and perhaps some luck.
This analogy is easily translated into the market. Your aim should not be to fight the market, but rather to make it work effortlessly for you.
We want easy trades that hit your targets as fast as possible; by doing so, the potential of earning money faster increases. If you have to wait a longer time for your trades to hit your targets, then your turnover ratio would be low: your capital would be tied up and thus you would be limiting your capacity to take on future trades.
Do not confuse this with excessive trading or scalping the markets!
Your aim should be to become a market sniper—and that could mean that you are entering into several trades a day.
Snipers aim to kill; if they spot an excellent opportunity they will act on it without emotion, which is much different from a machine gunner who sprays rounds in the hopes of hitting a target.
In my opinion, the ‘machine gunner’ is a scalper who hopes to make money in the market. Snipers do not rely on hope; they rely on the environment and key setups.
Some of the more experienced traders might be wondering: how should I be placing my entries and targets like a sniper?
This is not an exact science and some discretionary trading experience is needed to figure this one out. As your screen time increases you will have a better understanding of where to be placing these orders. However, as a rule of thumb, I usually place limit orders for both my entries and targets, and this will vary from setup to setup.
Remember: I do not want to fight the market. I will usually place my targets at the most obvious location (i.e. a support/resistance line, 20ema or a Fibonacci projection line).
If a support line and the 20ema line up together, I will most likely place my target a few pips above/below this line. I want to ensure that my target gets hit and that my profits are taken out of the market without much effort.
Patience is critical; only fire a round when the situation is ideal. Plenty of examples of where to place entries and exits will be discussed and explained later in this course
At times, it may be worth keeping your trade and moving up your stop loss higher every time your trade moves through a significant resistance level.
I do not use trailing stops as I believe this is a very difficult to control. Instead, simply moving your stop loss higher in an upward trending market can exponentially increase your return. I pay particular attention to these situations in a positive carry trade or swap.
Swap rates are determined by the overnight interest rate differential between two currencies involved in the pair.
For instance, if you hold AUD/JPY overnight (usually 0:00 server time) you will be paid a swap because the interest rate in Australia is greater than that in Japan. If on the other hand, you were selling AUD/JPY you would be paying the swap. However, be advised that some currency pairs will have negative swaps on both the long and short side.
Swap rates differ from broker to broker.
As a strategy, I love to keep some of my winning trades open when I have a positive currency swap until I see a price action setup that would show me to leave the markets.
This strategy, if implemented properly, can pay for your commission and more, much like a dividend payout on a public stock.
In the end, you can have much greater than 2:1 risk-to-reward trades while earning income!
This advanced strategy that should be implemented after you have a good understanding of the Forex source code and markets.
Forex Trading Examples from which to Learn
The following trade examples are real trades that ended up being successful for me. I will go through each one, step by step, and show you what exactly I saw and why I placed these trades.
The blue lines represent the “deal map” that illustrates where the trade was entered and exited. These examples are for educational purposes only.
Once the bearish pin bar was printed, the market retraced back to the value area and quickly sold off.
The first things I look for are clues as to what the market is communicating. I try to spot where the Agents are in the market.
Forex Trade Example 1
From the chart above, it is clear that there is a bearish bias after a pin bar that has printed and therefore, I am looking for shorting opportunities.
I missed out on the first retracement back to the value area; however, my limit order was touched on the next move back up. I always place my target orders at price levels where I believe there is a good probability price will go.
In this case it was a recent support level for a 60 pip profit.
Forex Trade Example 2
In the chart above, an inside bar was formed with the direction of the trend. The inside bar also coincided with an inside bar on the day chart which adds even greater probability to the trade. Trade resulted in a 63 pips win.
Chart Clues for Going Long:
- The long-term trend is up;
- Inside bars with trend on the day and 4hr chart;
- The mother bar has a very small wick on the top of the candle (a bald bar);
- Price broke through and closed above the 20ema.
Forex Trade Example 3
Here is an advanced pin bar trade.
Once the pin bar with trend was printed, a limit order was placed at the 50% retracement level and a Stop Loss was placed 3 pips above the nose of the candle.
It came very close to hitting my stop loss, however the trade still managed to go lower to hit my target. Target was placed at 2x risk for a 32 pips profit.
Chart Clues for Going short
- Pin Bar formed with trend;
- The top of the pin bar closed at a resistance level;
- The general direction of the trend is down.
Forex Trade Example 4
An inside bar formed on the day chart in the direction of the trend communicates to us that the trend may continue if there is a breakout above the high of the mother bar.
A limit order was placed 6 pips above the mother bar and a take-profit order at 60 pips higher. Target order was in conjunction with an overhead resistance level, which added greater importance to exit at that location.
Once the target was reached, it stayed in the trading range for over two weeks.
Remember that the method outlined in this course aims to make money from short-term trades.
I would hate to tie up capital and wait for over two weeks for my trade to hit my target.
Chart Clues for Going Long:
- Long term trend is up;
- Nice rejection off the 20ema;
- Inside bar formed on the day chart.
Forex Trade Example 5
This currency pair reacted in a breakout “price flip” where the old resistance became the new support. The entry was placed 6 pips above the mother candle and a stop loss a few pips below the breakout level.
Target was placed 42 pips above the entry which reached without much effort. (The second blue line represents another successful trade, but the method used is not taught in this course.)
Chart Clues for Going Long:
- The long term trend is up;
- A bullish candle closing above a major resistance level;
- Several inside bars formed after a breakout.