Price Trap Breakout Forex Strategy

The Price Trap Breakout forex strategy seeks to capture bullish/bearish signals that appear in a downtrend/uptrend around major support/resistance zones respectively.

Once the setup fits the criteria, then we should be keen on expecting where price got trapped.

Chart Setup

MetaTrader4 Indicators: HMA_v2.ex4 (Input Variable modified; HMA_Period=40) Fibonacci Retracement Tool, PRSI_PCCI.ex4 (default setting)

Preferred Time Frame(s): 1-Minute, 5-Minute, 15-Minute, 30-Minute, 1-Hour, 4-Hour, 1-Day

Recommended Trading Sessions: Any

Currency Pairs: Any pair

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Buy Trade Example

Fig. 1.0

Strategy

Long Entry Rules

Enter a buy order if the following indicator or chart pattern gets displayed:

  1. If the bear trap candlestick pattern (represented by candlesticks 1 & 2 on Fig. 1.0) forms around a major Fibonacci retracement level, it is an indication of upward price pressures i.e. a buy signal.
  2. If the light blue dots of the HMA_v2 custom indicator forms somewhat below the candlesticks, it is a signal to buy the designated currency pair.
  3. If the blue line of the PRSI_PCCI custom indicator break above the 0.00 level, it is a trigger to buy the currency pair of focus.

Stop Loss for Buy Entry: Place stop loss 1 pip below immediate support.

Exit Strategy/Take Profit for Buy Entry

Exit or take profit if the following rules or conditions takes precedence:

  1. If a resistance price pattern form around a Fibonacci level, it could be a clue to a possible weaning bulls pressure, hence an exit or take profit is advised.
  2. If a tomato colored dot of the HMA_v2 custom indicator forms on the activity chart, an exit or take profit is recommended.
  3. If the blue line of the PRSI_PCCI custom indicator break below the 0.00 during a buy alert, bulls power is diminishing, hence an exit or take profit is advised.

Sell Entry Rules

Enter a sell order if the following holds sway:

  1. If the bull trap candlestick pattern (illustrated by candlesticks 1 & 2 on Fig. 1.0) forms around a major Fibonacci retracement level, it is an indication of downward price push i.e. a sell signal.
  2. If the tomato dots of the HMA_v2 custom indicator forms somewhat above the candlesticks, it is a trigger to sell the selected forex pair.
  3. If the blue line of the PRSI_PCCI custom indicator break below the 0.00 level, it is a prompt to sell at once.

Stop Loss for Sell Entry: Place stop loss 1 pip above immediate resistance.

Exit Strategy/Take Profit for Sell Entry

Exit or take profit if the following takes center stage:

  1. If price pattern refuses to break below a Fibonacci level, it could be a clue to a possible weaning bears power, hence an exit or take profit is recommended.
  2. If a light blue dot of the HMA_v2 custom indicator forms on the activity chart during a sell signal, an exit or take profit is recommended.
  3. If the blue line of the PRSI_PCCI custom indicator break above the 0.00 during an ongoing sell alert, bears power is halting, hence an exit or take profit is advised.

Sell Trade Example

Fig. 1.1

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About The Trading Indicators

The HMA_v2 custom indicator displays a dotted line on the chart, wherein the color of the dots are altered in relation to buy/sell signals.

The PRSI_PCCI custom indicator is a technical study that is based on the CCI and RSI indicator.

A bull/bear trap can come in varying forms but at the core of it, we are searching for a candlestick that is extremely bullish/bearish, break the resistance/support zone, and then turns bearish/bullish respectively.

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