2/5: Identify the trading opportunity

Now that you have determined the overall market direction of a currency, you can proceed and begin looking for trading opportunities.

To determine where you will enter the pending order in the next step, you will first switch to the five minute chart and then wait for the price to briefly move against the overall market direction hoping for it to reverse back in the original direction with even greater force.

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Use the fractals on the five minute chart

First, switch to the five minute time frame.

To decide how far back the price has to go against the overall market direction, we use the fractals again. You need to wait for a 5 minute fractal in the opposite direction of the 30 minute market direction to be broken. Note that this can take any time from 15 minutes up to 2 hours or longer.

Watch out for changes in the overall market direction

While you wait for this fractal to form and break, the overall market direction on the 30 minute chart can change. You should keep checking the market direction every 30 minutes and if it does change, go back to the first step.

Your trading opportunity depends on market direction

Use the following instructions depending on the direction you have determined on the 30 minute chart.

Market direction is up — looking for a broken down fractal

Once you have switched to the five minute time frame, place a vertical line on the last candle of your chart, as shown in the chart below. You will not use anything that comes before, or to the left of, this vertical line. You will be waiting for the trade to set-up after, or to the right of the vertical line.

Vertical line market up

number_1 Vertical line where you switched to 5 minute chart — you now wait for the trade set-up after this line

How to draw a vertical line in MT4 Show instruction

Wait for a down- fractal to form and break after the vertical line

You should now wait for a down fractal to form and then break in order to find your trading opportunity and move to the next step. Until the break of the down fractal, you can completely ignore any up fractal that may form.

The chart below shows that the next candle after the vertical line has a down fractal. Place a line at the bottom of this candle — you will wait for price to break this line.

Down pointing fractal

number_1 Vertical line shows where you moved to the 5 minute time frame
number_2 A down fractal after the vertical line has appeared

How to draw a horizontal line in MT4 Show instruction

After the formation of the down fractal, you should wait for price to break the horizontal line you have drawn.

If a new down fractal forms before the previous one is broken, wait until that fractal is confirmed and then move your horizontal line to the new down fractal and wait for this fractal to be broken.

In the following chart, price breaks the level of the down fractal.

Pull back market up

number_1 Vertical line shows where you moved to the 5 minute time frame
number_2 A down fractal after the vertical line
number_3 Price has broken through that most recent down fractal number_2this is your trading opportunity

Next step

Immediately when price breaks through, you are ready to move to the next step to enter your pending order:

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Market direction is down — looking for a broken up fractal

Once you have switched to the five minute time frame, place a vertical line on the last candle of your chart, as shown in the chart below. You will not use anything that comes before, or to the left of, this vertical line. You will be waiting for the trade to set-up after, or to the right of, the vertical line.

Vertical line 5 minute chart

number_1 Vertical line where you switched to 5 minute chart — you now wait for the trade set-up after this line

How to draw a vertical line in MT4 Show instruction

Wait for an up fractal to form after the vertical line

You should now wait for an up fractal to form — it is the up fractal that needs to be broken before you can find your trading opportunity. Until the break of an up fractal, you can ignore any down fractals that may form.

The chart below shows that the next candle after the vertical line has an up fractal. Place a line at the top of this candle — you will wait for price to break this line.

Down pointing fractal horizontal line

number_1 Vertical line shows where you moved to the 5 minute time frame
number_2 An up fractal after the vertical line has appeared

How to draw a horizontal line in MT4 Show instruction

After the formation of the up fractal, you should wait for price to break the horizontal line you have drawn.

If a new up fractal forms before the previous one is broken, wait until that fractal is confirmed and then move your horizontal line to the new up fractal and wait for this fractal to be broken.

In the following chart, price breaks the level of the up fractal.

Pull back has occurred

number_1 Vertical line shows where you moved to the 5 minute time frame
number_2 An up fractal after the vertical line
number_3 Price has broken through that most recent up fractal number_2this is your trading opportunity

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  • Error with "the market direction is down" ? I don't understand the vertical line, there is no broken fractal ?
  • Hi Arnfast,

    The vertical line is there to help you determine at which point you switched to 5 minute chart. You now wait for the trade set-up after this line.
  • I think, vertical line was done after a chart change (30m -> 5m). Broken fractal was at 30m chart which isnt added.
  • Once you determine your market direction at M30 chart, you switch to M5 chart and then place a vertical line on the last candle. From this moment you are concentrating only on the priceaction to the right of this vertical line -> we use the line only as a visual help to determine where should we look for new fractals to form. smile

    Hope this helps, if not keep asking and I´ll keep explaining happy
  • Hello Guys, Can I please have a question about this strategy? On the screenshot here http://screenshot.cz/3K9ZO/ This can not be consider as a valid trading opportunity, as the high of the bars has not been broken, right? Do i understand it correct? Or is this valid trading oportunity? It was a sell trade, so i was waiting to reversal up fractal to appear but i am not sure if this was valid, if the high of the bar when fratal appers was not broken.

    Thank you very much for advice
  • Do you define direction change at 30m when candle is closed or when it is still open but changed direction?
  • Immediately when price breaks the 30 minute high of the ( fractal bar), so when it still open.
  • Hi guys,

    I hope you enjoy trading with our beginner strategy.

    e368481: You are absolutely right. Since you want to go short and are waiting for a pull-back, in this case you are waiting for an up-fractal to be broken. The level of the highest price (upper wick) of the candle marked by the fractal (1st candle) has to be broken (the price must go above the high of the candle). It did not happen and thus you have to wait for another signal. If you have any doubts regarding your trades, don´t hesitate and use our trade evaluation forum. happy

    mrksav: e362481 is correct, you don´t have to wait for the candle to close. wink

    If you guys have any other questions, keep asking.
  • Thank you for answer MBranjo and mrksav, I do really enjoy the fX market and thank you for strategy presented here and help you are willing to offer to beginners.
    I have some more general questions about strategy if you dont mind.
    Is there any prefered currency pair/pairs for this strategy based on results? Would it be possible to see some history results about this strategy if exist. Is there any other "filter ( indicator)" used for strategy, as this could give a lot of signals per day.
    I am just asking because this could help me to decide if i need to run on demo first or i can start it trading live right away. Because fractals are changing in time , so i am not sure, if this can be correctly backtested.

    Thank you very much
  • Hi e362481,

    thank you very much, we really appreciate your positive feedback and the fact, that you like the beginner strategy. And of course, I will be more than happy to answer all your questions. happy

    You can use this strategy on any currency pair and you can watch different currency pairs at the same time. However, bear in mind that if you do decide to trade the beginner strategy on different currency pairs, please note that the beginner strategy was designed with the EUR/USD in mind. If you decide to trade the beginner strategy on other currency pairs, then you may want to look at currency pairs that have similar characteristics to the EUR/USD.

    And of course, if you want to add more discretion to the trading system, there are more filters that you can apply. For more information read following article: When not to trade: applying the beginner strategy smile

    If you have any further questions, don´t hesitate and ask. wink
  • Under the section :- Wait for a down- fractal to form and break after the vertical line

    The chart below shows that the next candle after the vertical line has a down fractal. Place a line at the bottom of this candle — you will wait for price to break this line.

    Shouldn't this read "The next candle after the vertical line THAT HAS a down fractal " ?
    As the next candal after the vertical line has no fractal ..Sorry to be pedantic but it could confuse a beginner
  • When on the 30min. chart , what determines a change in the "overall" market direction?
  • please ignore my above question. I figured it out.
  • 'Note that this can take any time from 15 minutes up to 2 hours or longer.'
    Hi,
    the statement about is for M5. how about H1? may I use it on H1?
    Thanks.
  • JHTAN,

    beginner strategy is created to be used on M5, M30 charts. You can try it on higher timeframes, but it is your decision to do so smile. Of course trades on higher timeframes take longer time, so you may have some trades open for days instead of minutes and hours like in M5 chart.

    I hope this answers your question smile
  • I am pretty sure I am not mistaking when I say that near the very end of the video, the commentator says the overall market direction has not changed from "down to up" and he is wrong. In the USD/CHF Chart, the last broken fractal on the 30 minute chart is a down fractal located at approximately 0.94325 CHF.
    This makes sense to me for another reason that just the broken down fractal.
    If the overall market direction is down, we want to go to the 5 minute chart, wait for an up fractal to be broken and set the sell/stop order at the bottom tip of the candle located on top of the last down fractal, which is what he ends up explaining in the end.
    Basically, he is showing us a trading opportunity of a sell/stop order (obviously in the case of the overall market going down) and just before that, he is confirming that the overall market direction is going from down to up.
    Am I not right that he mistakenly said that?
  • Hi Mattymind, thanks for your feedback. I escalated it to our educational team and they will take a look.

    In the meantime let me welcome you in tradimo, if you want, you can introduce yourself in our froum smile
  • Hi Mattymind, I am sorry for the apparent late answer, I had actually replied here but for some reason my last post is missing - I must apologise for that.

    Essentially, when you are looking for a shorting opportunity, you are indeed looking for an up fractal on the chart to be broken first. This then gives you the trading opportunity.

    However, you questions is surrounding the 30 minute chart overall direction. If the direction had changed from down to up, then an up fractal on the 30 minute chart would have been broken. This is not the case here, because the last fractal on the chart to break was a down fractal, the market direction is still down.
  • Scenario: down trend on 30 min. On 5 min there are few up fractals formed after vertical line - none of them has been broken yet. Which one should be broken in order to place a trade? The first one after vertical line or the last one?
  • Two things about the quiz:
    Show spoiler

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