For example, you find a rectangle and expect to break through the border. In this case, the order is set in such a way that in the case of a breakout, you become a long position. Trading is conducted on an hourly chart, which you check very often to control the movement.
And the market begins to move. The order is triggered and Forex trading involves the opening of a long position. After making sure that the stop order is set correctly, you continue to monitor the market movement. And then there is an unexpected reversal of the bar, which earned money in the opposite direction.
The movement of the market down involves the closing of your position at the stop. That’s exactly what happens. Thus, the position you have no more, and you start searching for new opportunities to open positions. However, Forex trading involves another opportunity for you.
Let’s look at a way to get profit in cases where the trader’s assumptions are wrong. As a rule, traders see only their position during trading, thinking somewhat one-sidedly. Having decided to move to a long position after the break, they do not notice anything around, going to his idea. This is especially true for technical levels similar to the 52-week high or low, both for the trend line and for the graphical model. Most likely, you will have an idea of the location of the main support and resistance levels. They’re always obvious.
As a rule, Forex trading involves the breakthrough of one of these large levels that anyone will seek to stand on the appropriate side of the movement. When the market does not behave as you expected, it is possible to start acting in the opposite direction.
Forex trading: expected course of action
As an example, consider the bulk of traders who took long positions after the breakout and received a movement in the opposite direction. Some of them will trigger stop orders, and do not have those, will closely monitor the movement. For profit, you can go two ways. The first of them is the movement with the main mass, that is, in the case of a breakthrough in the expected direction, we get a point of entry, the level of limitation of losses and the probable purpose of making a profit. But Forex trading may involve a second plan of action, when the reverse movement of the market, you have another way.
The chart above shows an uptrend accompanied by a small consolidation. Initially, the market moved upwards in order to form resistance, and then made a turn towards the lower trend line.
Basically, there is always a break in the direction of the trend after consolidation, so in this case it would be most likely to expect a break in the upward direction. It turns out that we will take a long position after breaking the resistance line and get the calculated target at the top at a distance equal to the distance from the support to the resistance.
Forex trading: using a reversal to gain profit
Now let’s see what Forex trading involves for us next.
As we can see, the next bar did not continue moving up, but turned in the opposite direction.
Note: in case of a two-period downward reversal, the first period should be located at the end of a strong upward movement. It is preferable to close close near the maximum of the period, and it is best that this maximum was the new last maximum. The opening of the second period should occur next to the closing of the first period, and it should almost completely restore the losses of the first period, and its closing should occur near the minimum of the first period.
Thus, the market movement is carried out in the opposite direction, compared to what we expected. Next, Forex trading is carried out as follows: close a long position and immediately open a short one, setting a stop order at a level above the maximum, not a breakthrough.
Our position is now short and we have a loss limit, now we have to set a goal. As the first – the previous level of support. The reason for choosing this goal is very logical. We may find ourselves in a long period of consolidation, when the price will fluctuate between support and resistance levels.
The failed breakthrough was carried out with a two-period reversal, therefore, as an option Forex trading on: hold a short position, watching the actions at the level of resistance. Depending on the market situation, you can add to a short position. It is very important to use the situations provided by the market. In situations where it is obvious that an attempt to break the trend line will not succeed, you need to have a plan for further action Forex trading, how to use the situation with the greatest benefit for yourself.
There are even strategies for individual traders who trade on such situations: they find easily recognizable models, and then use the failed movement for profit.