Nick Nasad
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Trade Set-Up Lesson: Signs for Entering a Trending Market on a Retrace

Usually I write about various opportunities that appear in the market, but with this post, I wanted to switch gears a little bit and describe one of the set-ups that I particularly like.

The main factors that go into this set-up are as follows:

  1. We should be in a trending market in the time-frame we are considering. The trade will go with the trend. (I'll be doing this example from the perspective of a downtrend).
  2. For me the time-frame where I see this trade set-up play out the most is the 1-hour chart.
  3. This trade comes about after we have an initial sharp move with the trend (but let's say we missed it, or we are looking for an opportunity to add another position).
  4. The pair then retraces the sharp move in a gradual manner, setting up a series of short-term higher lows. 
  5. With those higher lows we draw an trendline (an upward sloping one if we are in a downtrend or vice versa).
  6. The last ingredient then is that we have a good resistance level (either a horizontal pivot or an important moving average, like the 21 or 55).
  7. We can also incorporate fibonacci levels since we are working with a retracement (say 50% or 61.8%) but its not required - though it can help only help build the case.
  8. With those factors in place (I know it sounds like a lot, but I just wanted to be detailed here), we look for a break of the trendline we just drew, which triggers the trade. 
  9. We can then aim for the previous low (from the move in #3) or we can do a measured move (project the recent downswing from the high that was just set.
  10. The stop would be a bit above the resistance trendline/moving average we were using.

The reason this set-up works is that it adheres to what we want to do as traders mainly, 1) go with the trend and 2) be patient and wait for retraces from which to enter, and 3) its pretty basic. Now, its obviously not guaranteed to work every time, but it does have a good risk to reward ratio, and is a good way to be able to jump on board trending markets. 

Hope this helps!


- Nick