Pop ‘n’ Stop Trade: A Simple and Effective Forex Trading Strategy

Pop ‘n’ Stop Trade: A Simple and Effective Forex Trading Strategy

Submitted by adil on Tue, 04/29/2014 - 07:52

There are many occasions on which traders wait to trade breakout from a tight range. Many traders believe that they can make a lot of money if they correctly identify and get on board the price movement because the price moves violently in one direction or other after it breakouts from tight range.

However, price gets beyond the reach of traders most of the time in this particular situation even if they keep a close eye on its movement. The end result is utter disappointment and you can even hear some of the traders murmuring “oh, I have missed a great move again.”

Subsequently, traders want to chase the price instead of trading the breakout and this usually results in even more drastic consequences. The price usually takes traders towards a loss because they enter the trade when it is already underway and they could only watch the move to first stalling and then reversing.

It is quite natural that traders urge to trade breakouts as it can generate a lot of profit for them. But unfortunately enough, it does not always work for most of the traders. Following lines explain strategy that can help traders to make most of breakout trading. It combines the Rejection Chart Candlestick pattern and price action to make your trades safer and less “self-destructive.”

Take a look at the following illustration.

In the chart above, the price is breaking out of a tight range right in the start of trading session (in the left of the screen). Perhaps the price breaks to upside because too many traders were going for the same position or there was an important news release. No matter what the reason is, the price  breaks out of the range, then stops for a while and finally resumes its upside movement. The first white circle indicates this particular area and it is known as Pop ‘n’ Stop trade.

Two bullish rejection bars are also developing above a round number (dotted gray line) which is also rejecting them at this stage of the trade. In this kind of situations, traders can always expect to see some sort of retracement at breakout point of the price whenever it moves in one direction with a fast and long candlestick. This happens because the fast candle quickly covers a spars orders’ area which appears as a sort of “gap” in the market and they are filled quite quickly as well.

Similarly, traders can also place their limit orders 1 or 2 pips ahead of rejection bars at this stage. If investors try to trade aggressively, their stop losses might finish under the tail of rejection bars. Similarly, they can also place it under the range highs if they want to adopt a more traditional approach.

For anyone looking to trade price breakouts, the Pop ‘n’ Stop is quite an interesting and effective strategy. Traders just need to consider few things to make most of this strategy. For instance, it is a risky strategy and therefore, only experienced traders should use it.