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Price-Action Trading Strategy

Trade Set-Up #3:
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Channel Overshoot/Undershoot HOLDS

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 hold as
support/resistance to enter the trade.
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Here are the steps to perform to find this trade set-up:
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1. Find a channel overshoot (or) undershoot on the chart
2. Define the initial amount of the overshoot/undershoot
3. Define the ‘point of interest’ (‘POI’) by plotting the amount of the
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overshoot/undershoot at the opposite side of the channel.
4. Use the ‘15-tick rule’ to define the maximum amount that price may exceed
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the ‘POI’ before this trade set-up is considered a failure.
5. Wait for price to test the ‘POI’ and make sure price does not exceed the
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‘15-tick rule’
6. Look for the correct entry trigger candle in the direction of the trade to
close within the ‘15-tick rule’
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7. Place a limit-order at the ‘POI’ and wait for price to trigger the entry into
the trade.
8. Remove the limit order if price exceeds the ‘POI’ (in the direction of the
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trade) by more than 15-ticks without coming back and filling your entry.
 Entry Trigger:

 LONG:
o Price cannot have exceeded 15-ticks below the ‘POI’
o Bullish/Green ‘trend’ or ‘reversal’ candlestick closes above 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 buy.
o If you are entering below the 21ema, make sure you have at least 10-
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ticks of room before you test the 21ema.
 SHORT:
o Price cannot have exceeded 15-ticks above 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.
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Trade Management:

 LONG:
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o Profit-Target(s):
 +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:
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 Use the ‘2-candle trailing stop-loss’ after first target
 SHORT:
o Profit-Target(s):
 +10ticks, and 2-ticks above the next level(s) of support
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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:
 Use the ‘2-candle trailing stop-loss’ after first target

When to Avoid this Trade Set-Up:

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Only trade the ‘overshoot’ of the channel, do not trade the ‘undershoot’ of the
channel.
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Only take the first test of the ‘POI’, do not look for trades on the 2nd or 3rd test of
the ‘POI’.

Always avoid trading during major economic news events.

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