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Price-Action Trading Strategy
Trade Set-Up #4:
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Channel Overshoot/Undershoot FAILS
Ideal Conditions for this Trade Set-Up:
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This trade set-up looks for a channel ‘overshoot’ (or) ‘undershoot’ and then looks
for the overshoot at the opposite side of the channel to FAIL as
support/resistance to enter the trade, which is defined by exceeding the 15-tick
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rule.
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Here are the steps to perform to find this trade set-up:
1. Find a channel overshoot (or) undershoot on the chart
2. Define the initial amount of the overshoot/undershoot
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3. Define the ‘point of interest’ (‘POI’) by plotting the amount of the
overshoot/undershoot at the opposite side of the channel.
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4. Use the ‘15-tick rule’ to define the maximum amount that price may exceed
the ‘POI’ before this trade set-up is considered a failure.
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5. Wait for price to test the ‘POI’ and make sure price exceeds the ‘15-tick
rule’ (this is the opposite of trade set-up #3)
6. Look for the correct entry trigger candle in the direction of the trade to
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close
7. Place a limit-order at the ‘POI’ and wait for price to trigger the entry into
the trade. The trade will be going in the opposite direction of the channel.
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Entry Trigger:
LONG:
o Using a bearish channel
o Price must have exceeded 15-ticks above the ‘POI’
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o Bullish/Green ‘trend’ or ‘reversal’ candlestick closes above the ‘POI’.
o Limit order is placed at the ‘POI’ and wait for price to come back and
fill the order to buy.
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o If you are entering below the 21ema, make sure you have at least 10-
ticks of room before you test the 21ema.
SHORT:
o Using a bullish channel
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o Price must have exceeded 15-ticks below the ‘POI’
o Bearish/Red ‘trend’ or ‘reversal’ candlestick closes below the ‘POI’.
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o Limit order is placed at the ‘POI’ and wait for price to come back and
fill the order to sell.
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o If you are entering above the 21ema, make sure you have at least 10-
ticks of room before you test the 21ema.
Trade Management:
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LONG:
o Profit-Target(s):
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+10ticks, and 2-ticks below the next level(s) of resistance
o Initial Stop-loss:
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-15ticks
o Breakeven Stop-loss:
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Move stop-loss to point-of-entry +1-tick after first target
o Trailing Stop-loss:
Use the ‘2-candle trailing stop-loss’ after first target
SHORT:
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o Profit-Target(s):
+10ticks, and 2-ticks above the next level(s) of support
o Initial Stop-loss:
-15ticks
o Breakeven Stop-loss:
Move stop-loss to point-of-entry +1-tick after first target
o Trailing Stop-loss:
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Use the ‘2-candle trailing stop-loss’ after first target
When to Avoid this Trade Set-Up:
Only trade the ‘overshoot’ of the channel, do not trade the ‘undershoot’ of the
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channel.
Only take the first test of the ‘POI’, do not look for trades on the 2nd or 3rd test of
the ‘POI’.
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Always avoid trading during major economic news events.
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