High probability trading strategies forex broker
High Probability Chart Patterns Technical chart patterns are a subset of technical analysis. It is a discretionary based trading technique that is quite popular among Forex and futures market traders. Classical chart patterns are essentially price action structures that form unique patterns on the price chart. There are many chart patterns that can occur in the market.
Some of the more common chart patterns include the head and shoulders, double top and double bottom, rectangle, wedge , triangle, flag, pennant , and cup and handle. Each of these patterns has a unique visual appearance, and when traded properly, they can provide for high probability trade signals. And the inverse head and shoulders pattern appears at the end of a downtrend.
There are three primary components within a head and shoulders pattern. This includes the left shoulder, which is an important swing high, followed by the head, which is highest peak within the pattern, and finally the right shoulder which is an important swing high that follows the head formation. Below you can see an illustration of the head and shoulders pattern. The neckline holds a special significance within the structure. Essentially the neckline is drawn connecting the two troughs within the larger structure.
The neckline can be a straight line, or slanted slightly upward or downward. It serves as the signal point for the head and shoulders pattern. More specifically, a sell signal would be triggered when the price breaches the lower neckline. Flag Pattern — The flag chart pattern is a continuation type pattern that is often seen following a sharp price move up or down.
It resembles a zigzag or lightning bolt formation. It is a consolidation phase wherein the price action is contained within a parallel price channel. The upshot of the flag pattern is that once this consolidation formation ends, it will result in another price leg in the direction of the prior trend. There are several different ways to execute a high probability trade using the flag formation. One could wait for a breakout of the resistance trendline in the case of an uptrend, or a breakout of the support trendline in the case of a downtrend.
Alternatively, some traders prefer to use the Fibonacci retracement as their preferred high probability entry technique. Click Here To Join Below you can see an illustration of the flag pattern. Rectangle Pattern — Another classical chart formation that is often seen within the price action is the rectangle pattern.
Most times, the rectangle pattern is considered a continuation pattern, but sometimes it occurs as a reversal pattern. When it occurs as a reversal pattern is referred to as a rectangle top, or rectangle bottom. Regardless, the price action within the rectangle structure will consolidate between a horizontal resistance level, and a horizontal support level.
These horizontal price levels will form what appears as a rectangle or a parallel price channel. The price action should be contained within the rectangle structure. The high probability play would be to wait for a breakout from the rectangle pattern that aligns with the larger trend. Below you can see an illustration of the rectangle formation. Using Confluence To Find The Best Forex Trading Setups There are certain steps that you can take as a trader to increase your chances of achieving a high probability trading strategy that works in the market.
We discussed some different types of technical chart patterns as a starting point for building a profitable trading strategy. There are countless other trading techniques that you can explore as well. However, there is one important trading concept that you should know because it will benefit any type of trading methodology used. And this concept that I am referring to is called, Confluence. Confluence, as it pertains to trading the market, means that we should seek to have several different, uncorrelated market signals that are pointing to and confirming the same underlying premise.
In other words, we would look for bullish confluence when we are seeking to take a long position, and conversely, we would want to see bearish confluence when we are seeking to take a short position. Now, an important point about confluence that needs to be stressed is that we should be using non-correlated analysis techniques or indicators to confirm the trade.
Many traders are under the impression that confluence simply means that all of your preferred indicators should be providing you confirmation on the trade. However, some of these traders fail to realize that many technical indicators are redundant and as such they may not provide unique information.
All of these indicators are considered momentum indicators. As such, if you rely exclusively on this class of indicators for confirmation , then you may be mistaken in believing that you are achieving a true level of market confluence. The reason being is that true market confluence relies on receiving the confirmation from a non-correlated analysis technique or indicator. This is an important distinction that traders need to keep in mind if they hope to find the highest probability trade set ups in their chosen market.
An example of a high probability trading scenario that utilizes true confluence would include confirmation coming from a momentum indicator such as RSI, a horizontal support resistance level, and a candlestick pattern formation.
All three of these market analysis techniques are uncorrelated in nature. Any one of these could provide for a viable trading signal, however, when they are combined, they can result in achieving a much higher probability of success on the trade. You can use a countless array of different combinations in an attempt to build your own high probability trading model.
By that what I mean to say is that there is a point of diminishing returns. In other words, you should utilize two or three unique trading tools to find high probability trade setups. Anytime you go beyond three or four confirmation parameters, it leads you down a slippery slope wherein you will either substantially reduce the frequency of your trades, or build a model that is too restrictive to trade in the real market environment.
In which case, your trading method may not be statistically significant due to a lower number of occurrences observed. High Probability Forex Strategy You should now be more familiar with some of the components that constitute a high probability trading method in the markets.
At this point, we will attempt to build a complete trading methodology that can be applied in the financial markets. The strategy can work on many different timescales and with many different financial instruments. In order to achieve the best results, I would suggest applying it to the four hour timeframe and above in the spot forex or commodity futures market.
This high probability trading tactic is built around three different technical studies. And all of which have a fairly low correlation to one another. As a result, it would provide us a high level of confidence in our trade because there are several unrelated analysis techniques pointing to a specific market signal. The first of these indicators will be the 50 period exponential moving average. Essentially the exponential moving average takes into account the recent price action more heavily within its calculation that it does the latter data points.
As such, the exponential moving average is a more sensitive moving average study compared to the simple moving average. For this particular strategy, we prefer to use the exponential variation. In addition to this, you will be scanning for a very specific chart pattern, and one that we have touched upon earlier. Round number strategy This is an incredibly simple trading strategy : take advantage of large round numbers as they tend to attract large order flow.
Trade at big figures such as 1. If you are even more patient, you can wait until you get whole figures such as The currency markets tend to react quite positively to the idea of support resistance every pips. So at this point it comes down to whether or not you are willing to wait, but every or pips gives you an opportunity.
A simple short at that level could be a nice selling opportunity. A 10 pips stop with a 20 pips target worked out quite nicely. Notice how this is a PIP number. On the other hand, if it were something like the 1. This is why it works out better every pips because those are much more important.
Three in a row This is an incredibly simple strategy as well, as waiting for three similar candlesticks in a row is all you have to do. Obviously, you need some type of trend to start trading. In the pink circle, you can see that we had three white candles in a row, showing that the market was starting to pick up momentum.
At that point in time you would put a stop loss below the bottom of the third candlestick and aim for at least the same distance as the distance of the three candlesticks. Another twist on this is that if you get the same distance as you did of the three candlesticks, then you could put the stop loss at breakeven and see if you can let the trade run longer. Hammer time! While this seems incredibly rudimentary, I know professional traders that do nothing but trade hammers or shooting stars whenever they appear.
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