How I Trade Early-Morning Reversals in Forex
My name is Steve Rising. I am an active investor and trader with over 15 years of experience in the forex, equities and futures markets. The forex is a prime market to day trade. Many of the currency pairs are range bound on a daily basis. One of my favorite forex trading strategies is a combination of range trading and looking for a reversal using a 10-minute candlestick chart.
These ranges are easy to identify. On a typical day the daily trading ranges will end with price having a double zero value. I call this strategy the range and reversal trade. I once read an article about trends where the author noted that it’s easy to identify the trend because it is obvious. As traders we often tend to complicate the process. Remember this simple rule of thumb: The trading range should be obvious. Keep this rule in mind and use price as your leading indicator, and most of your trading opportunities will be obvious. So let’s walk through the process. The first step is to look at a daily chart. As you can see on this recent chart of GBP/USD the range of the current week is 100 pips and trading between to key values 1.8900 and 1.900. Remember we are looking for ranges that end in double zero values.
Remember it will be obvious. You only need to look at the previous activity from the last 2-3 days. I recommend preparing for the range/reversal trade at 7 am EDT (or EST based on time of year). One of best times of day to trade the forex is between 7 am-11am EDT. Here are the ideal conditions we are looking for as we can see on the chart below. 1. Price starts to consolidate for a couple of hours prior to the beginning of the morning session. 2. The consolidation is occurring at the bottom of the range at a double zero value which we we identified on the daily chart. In this case 1.8900. 3. Price has established support on the double zero value. It is the beginning of the trading session and at the bottom of the range.
Once price breaks through support we now anticipate the reversal. Our entry point is established 10 pips above the high of the previous short-term consolidation. Here is an example.
Once price breaks through the resistance @ 1.8950 we can look to take the trade to the top of the range which was 1.9000 as we discovered on the daily chart.
Our exit point is 5 pips inside the top of the range. Once we enter the trade we use a 15 pip auto trailing stop from the entry price. It is a simple and obvious set up. The key factors: 1. Price was at the bottom of the range at the beginning of the trading session. 2. Price had consolidated and established support at the bottom of the range on a double zero value. 3. Price dipped retraced and then cleared the top of the consolidation. This is your entry point. 4. Price runs and breaks the next level of resistance indicating the extent of the price move will then carry to the top of the range. Do not over analyze or try and make this simple opportunity too complex. Practice the trade first. Then execute.
Remember a common fault for most traders is they constantly try to complicate the process. This need to add complexity stems from the traders inability to use price as a leading indicator. Trading should be enjoyable, and fun, not a stress intensive exercise. Enjoy, one of my favorite strategies.
Steve Rising is a seasoned professional investor/trader with over 15 years of experience in the equities, futures and FOREX markets. Steve started his career as registered representative directly out of college in the late 80’s. As the Internet, online execution platforms, and technology advanced, Steve shifted his focus to trading. Realizing the need for individuals to be able to manage their own financial goals and not be an employee of their broker, Steve has been a pioneer in the online trading and education field. For more information visit: www.thetradinginstitute.com.