The head pattern forex reversal strategy identifies possible price reversal points.
Green arrows suggest a bullish reversal point while, on the other hand, red arrows suggest a bearish reversal point.
Red and green arrows may appear in both up-and downtrends.
So, we need to filter out most bad signals with an additional trading indicator. This can be done with Bollinger bands or RSI indicator.
Let’s examine the head pattern reversal strategy with the RSI filter.
Indicators: head-fake-pattern.ex4, RSI (period: 7)
Preferred time frame(s): 5 minutes and up
Trading sessions: London and US for day trading purposes. Any session for swing trading and long-term trading.
Preferred Currency pairs: any
Example: USD/JPY 15 Min Chart
As shown in the chart above, we only trade the overbought and oversold RSI signals combined with the head fake indicator.
- Green head fake indicator arrow appears on the chart
- RSI (7) oversold (at 20 level or below)
==> Go long.
Stop-Loss: Place low risk stop below the most recent support.
Buy exit strategy : Close the trade at risk-to-reward 1:2 or better.
- Red head fake indicator arrow appears on the chart
- RSI (7) overbought (at 70 level or above)
==> Go short.
Stop-Loss: Place low risk stop above the most recent resistance.
Sell exit strategy : Close the trade at risk-to-reward 1:2 or better.