One of the most loftier probability trades occurs when a strong reversal is in effect. Few people are even aware the trend has inverse direction, simply as they realize it, information technology often creates another strong surge in price. If yous know what to look for, y’all tin arrive before the crowd and ride the next toll wave on a loftier probability trade.
The Snap-Back Strategy Setup
The snap-dorsum refers to the kickoff very potent move against a prior tendency. It must be strong enough to indicate at least a brusk-term modify in direction, and that another strong move volition follow in the same direction every bit the snap-back.
Snap-backs are usually two or more price bars, although there is no stock-still number of bars that works best.
Figure one shows a snap-back lower and a snap-back higher. The snap-dorsum is an aggressive precipitous movement against the prior direction. The toll falls abroad in the starting time instance, and rallies sharply in the second example; it is only a snap-back if the movement is very potent (no globe-trotting) and it is the
first
very strong move against the prior direction.
The strategy tin can be applied on anytime frame.
Figure 1. Snap-Backs – EURUSD
The fourth dimension and price scales have been removed in the Effigy 1, as the total move or time isn’t of concern, rather,
simply relative movement matters. The two snap-backs marked clearly evidence aggressive first movement confronting the prior management. This could exist a 1-minute chart or a weekly nautical chart, the set-upwardly is still the same.
Taking a Merchandise
Figure 1 shows the “snap-dorsum” we looking for. Following the initial snap-back move in that location is usually a pause–often moving mostly sideways–which is then followed by another strong move in the same direction as the snap-back. This can be idea of every bit “snap-back, break, and follow-through.”
The pause provides the entry point. It must be two or more bars, which shows the price has actually slowed. The exact entry point is beyond the scope of this article, although the strategy is notwithstanding highly effective if inbound anywhere in the pause. If you lot accept a fleck of patience and don’t mind missing the odd trade, you tin let three (or more) bars develop on the pause, and then place an entry society near the elevation of the pause if the snap-back was lower, or near the bottom of the suspension if the snap-back was higher.
This keeps risk extremely pocket-sized and maximizes return.
Figure ii. Snap-Back Trading – EURUSD
Figure two shows a snap-back lower, followed by 2 pauses which occurred back-to-back. Both pauses are fine to enter short on, as the expectation is still that the toll will proceed to drop.
The rectangles mark platonic entry areas. The 2nd suspension provided ample opportunities to go brusk almost the top of that pause.
Stops and Targets
If trading binary options you lot don’t demand to worry nigh stops and profit targets, although you volition need to choose an expiry time. Choose an expiry time that is nearly 5 to 7 “bars” abroad from your entry fourth dimension. For example, if you are monitoring a ane 60 minutes chart, your decease should be 5 to vii hours away (5 to vii bars). This gives enough time for the price to follow-through, simply not enough time for it to start reversing. You may wish to adjust this based upon whatsoever tendencies in the price activity at the time of the merchandise.
If trading traditional markets, place a stop loss merely above the pause in a snap-back lower, and just below the pause in a snap-dorsum higher.
The target is based on the original move. In figure 3 nosotros measure the turn a profit based on the high of the first ruby-red bar (start of down motility) to the low of the
first
interruption. If that is 100 pips, and then we are looking for the toll to go along to driblet 100 pips from the
top
of the kickoff pause.
In Figure 3 I have drawn a trend line to provide the distance (high of downwardly move to low of intermission example) of the snap-back. The line is then simply copied and moved (elevation of line at top of first pause) to provide the target for the trade.
Effigy 3. Stops and Targets
Concluding Word
These abrupt moves against the tendency catch most traders off baby-sit, which is probability why it is such an effective trade. You volition need to determine for yourself, perhaps with the help of indicators, what exactly constitutes “strong” or “aggressive” to yous. Define your ain personal parameters for how you volition handle these situations. Continue in heed, the profit target is set regardless of your entry betoken. You may wish to hold a trade a bit longer if the price is moving well in your favor, but avoid getting greedy–usually the method outline for profit taking is quite effective.
Source: https://www.binaryoptions.net/the-high-probability-snap-back-strategy/
