Steep, fast rallies in currency prices, better known as spikes are often caused by major economic news releases such as the non farm payrolls report (NFP). The vast majority of traders lose a lot of money trading spikes in Forex. Therefore, I reveal my favorite forex reversal strategy on how to make regular profits from spikes utilizing bullish and bearish pin bars.
This strategy works best on 5 min charts and provides good risk-to-reward ratio’s.
Time Frame: 5 min chart
Currency Pairs: Majors (EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, USD/CAD and NZD/USD)
Trading Sessions: all
Bullish/Bearish Pin Bars
Rules For Sell Trades
1) Wait for a significant upward spike to occur in any of the major currency pairs. The spike must be clearly visible on the 5 min chart.
2) The appearance of a bearish pin bar in the vicinity of the spike high price triggers a sell order.
3) Open a short position at market on the close of the bearish pin bar.
4) Our stop is placed at the high of the pin bar.
5) Our target is the low of the upward spike candlestick.
Example – Forex Spike Reversal Strategy, GBP/USD 5 Min Chart
In the GBP/USD 5 min chart above, a 50 pip spike occurs in the market. Four candlesticks later at 13:00 on October 26, a bearish pin bar appears on the chart and we enter short on the close of the pin bar at 1.5882. Our stop loss is placed at the high of the bearish pin bar at 1.5894. Our target is the low of the upward spike candlestick at 1.5849.
The trade was closed 75 minutes later, banking 33 pips of profit.
Rules For Buy Trades
1) Wait for a significant downward spike to occur in any of the major currency pairs. The spike must be clearly visible on the 5 min chart.
2) The appearance of a bullish pin bar in the vicinity of the spike low price triggers a buy order in the market.
3) Open a long position at market on the close of the bullish pin bar.
4) Our stop is placed at the low of the pin bar.
5) Our target is the high price of the downward spike candlestick.