Thread by @corymitc

This is one of my favorite #forex and day trading patterns (I also use in stocks).

It occurs nearly every day on the 1-minute chart and it often occurs multiple times within a 1.5 to 2-hour time period (or however long you opt to #daytrade).

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I call these RTs or RBs, which stands for Rounded Top and Rounded Bottom. The pattern requires specific criteria, but if you practice them, you'll see them almost every day.

I daytrade them on the 1-minute chart, but I also trade them on other time frames and various markets...

First, let's look at the patterns, and then I'll provide some context as to when to trade them, when not to, position-sizing, leverage, and other details...

This is a graphic of an RT. Every criterion needs to be met in order for me to consider taking a trade. And they must occur in order.

Despite the specific criteria, this pattern occurs often.

The most common error I see with this pattern is not waiting for the price to make a new or matching swing low after the high.

This is a crucial element. It shows the price is shifting direction to the downside. That's the whole point of the pattern...

Also, the entry must occur below the high of the pattern, but not much below the dotted line.

Basically, the entry must occur near or within the existing pattern. If it drops way below the dotted line and doesn't pull back to near the dotted line (or above), skip the trade.

Here is the RB pattern. The entries are often quite clean like this.

This is because the price trend has just turned up. As the price starts moving back up after the pullback entry, more people realize the price is going higher, and the buy orders flood in...

Once again, the entry must occur within the pattern, or just marginally above. I don't take entry signals that occur way above the dotted line (that's a different pattern).

In this example, the entry occurs between the dotted line and the low. Anywhere in there is good...

I don't use this strategy if the $EURUSD has moved less than 15 pips in the last 2 hours.

There's some wiggle room, but basically, if there isn't much movement I don't want to be trading. This strategy works best while London is open, especially during the US & London overlap..

For #forex day trading entries, I use market orders, with a SL and Target attached.

As a potential trigger candle forms, I estimate my SL size, my target, calculate my position size (discussed later), and input this into the order...

To input #daytrading orders quickly in #MT4, right-click your chart, select Market Depth.

Use the pop-up to quickly input SL and Target in fractional pips.

2 pips = 20 for example.
A 5 pip target is 50 (fractional pips).

Position size is in standard lots.
0.1=10k
1=100k

Reward: Risk - The stop loss is placed above the trigger on an RT, and below the trigger candle on an RB, as described on the charts.

The target is 2.5x your SL distance.

If the SL is 3 pips, target is 7.5 pips.

More on risk/reward: tradethatswing.com/win-rate-risk-… ...

Recent price waves (especially just prior to the RT or RB) must be big enough to hit the target. Measure them to find out. Do this BEFORE taking a trade.

If they are not, then you either must reduce the target or not trade...

I risk a certain amount on each trade, typically 1% of my account.

As the SL changes so will the amount I trade, but the % I am risking of my account doesn't change.

You can read about position sizing here: tradethatswing.com/three-effectiv… ...

Risking 1% of the account on a trade that lasts a few minutes often means utilizing large leverage.

For example, on a US$10k account, risking 1% means risking $100 (to make $250).

If SL is 2 pips, the position size is 500k or 5 standard lots ($100 / (2 X 10)) = 5 lots ...

That's big leverage so don't hold a trade through major news announcements.

Use an economic calendar. Exit at least 2 mins before major news.

Don't trade until at least a minute after the news is released...

Using big leverage there are risks.

If the price gaps through the SL order the loss could be bigger than expected.

Use the position size you are comfortable with, but risking 1% of the account will typically mean using high leverage when the SL is small....

When you start out trading, don't risk 1% per trade. Risk 0.1% per trade. If profitable for several weeks move up to 0.2%, then 0.3% a few weeks later.

Take it slow. Most people risk too much too early and are demoralized and out of money just as they start making progress...

While leverage carries risk, it also presents big reward.

By risking 1% per trade, 1 or 2 winning trades adds 2.5% to 5% to the account balance in a couple hours or less.

The strategy has a win rate near 60%. Over 10 trades, do the math. The returns can be great...but....

Brokers/commissions: Because we are trading large quantities of currency you will also be paying quite a bit in commissions.

You want a broker that offers small spreads (0.5 pips or less) and small commissions $3/100k or less. Lower is better...

Even with big leverage, in 15+ years I've never taken a big hit of more than a few percent.

Be respectful of the market, don't push your limits, and don't EVER let a loss keep running.

With leverage, letting a loss run (canceling your SL) can kill you very quickly...

In volatile conditions, candles will be bigger, and thus our stop loss will be bigger. Thus our position size will be smaller, exposing us to less leverage.

There are 100s of chart examples of this strategy, and others, here: tradethatswing.com/category/forex…

I also post a chart on Twitter each day from the early US session when I am trading (I post less in summer because I tend to trade less due to outdoor activities)...

If you are interested in learning more, The $EURUSD Day Trading Course covers this strategy more in-depth, as well as much more.
tradethatswing.com/product/the-eu… (additional strategies and insights have been added to the course over and above this Table to Contents)

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