The second set-up we are going to teach you is the TrendLine Pullback formation. The TrendLine pullback formation occurs when price breaks a trend line, and then retraces to test it. Once price tests it, and reverses – we will enter the trade in the direction of the breakout.
Step 1: Identifying a trend line
We identify a trend line – price stopping on one line for more than 2 times.
Step 2: Wait for price to break the trend line
Step 3: Wait for price to retest the trend line
Price re-tests the trend line when it comes back to touch it. Reversal is confirmed when price goes above the high of the previous candle (for long trades) or below the low of the previous candle (for short trades).
Step 4: Placing Stop Loss
Stop Loss is placed:
- 5 pips below the lowest low of last 4 candles (for long trades)
- 5 pips above the highest high of last 4 candles (for short trades)
Exiting the Trade
Trade is closed when the 20-period moving average is no longer sloped = is flat. A flat moving average signals that the trend is weak and not likely continue.
Next chapter - Super Aggressive Reversal Set-up