The trendline retest forex trading strategy is used when:
- price breaks a trendline and goes away from it
- and after a while, it start heading back to the trendline it just broke previously.
Now, even though the trendline was broken already, when price comes back to it, that trendline can act as a support or resistance for price.
That’s when you can wait for an opportunity to use the trendline retest forex trading strategy.
What Currency Pairs You Can Use The Trendline Retest Forex Trading Strategy On?
Any currency pairs can be used with this trading system.
What Timeframes Are Suitable For Trading With The Trendline Retest Trading Strategy?
You can use any timeframe but 1hr timeframe and above are much more suitable, simply because it reduces the “noise” that is so prevalent in the smaller timeframes.
Any Forex Indicators Required To Use With The Trendline Retest Forex Trading Strategy?
No additional indicators are required. What you need is just an eye for drawing valid trendlines.
It simply identifying a minimum of two swing high points for drawing downward trendlines and a minimum of two swing low points for drawing an upward trendline.
Here’s An Example of A Buy Setup Based On The Trendline Retest Trading Strategy
The chart below show 4hr chart of AUDUSD. Notice that price was:
- in a downtrend for a while and a trendline was drawn connecting two swing high point or peaks marked as 1 & 2 on the chart below.
- price eventually went up to it an broke the trendline and it want away and up from it for a while before it came back down to re-test that trendline it broke prior.
- when price hit the trendline, it started moving upward again for a long while.
So here are the trading rules for the buy setup:
- draw a downward trendline
- if price breaks the trendline, wait for the retest.
- if a retest happens, its is better to use a bullish reversal candlestick as a trigger to place your pending buys top order just 2-3 pips above that bullish candlestick. If price decides to go up, your buy stop pending order will be activated.
- Place your stop loss a few pips (5-10 pips) under the low that bullish candlestick.
- For take profit targets, use previous swing high as your take profit targets.
Here’s An Example of A Sell Trade Setup Based On The Trendline Retest Trading Strategy
The chart below is a daily chart of USDJPY and notice that:
- a trendline was drawn and it was intersected.
- price dropped away from that trendline for a while and then later went back up to re-test it.
- the broken trendline acted as a resistance and price moved down again from it.
The trading rules are the exact opposite of the buying rules:
- draw the upward trendline
- wait for the re-test of the trendline.
- use a bearish reversal candlestick as a trigger for you to place your pending sell stop order 2-3 pips under the low of that bearish candlestick pattern. If price continues to go down, your sell stop order will be activated.
- place your stop loss 5-10 pips above the high of the bearish candlestick pattern but if its too close, you may need to increase your stop loss distance a bit more to avoid getting stopped out prematurely.
- use previous swing lows as your take profit targets
Advantages of the Trendline Retest Forex Trading Strategy
- there will be times when you will miss the trendline trading strategy setup or the trendline breakout trading strategy setup. Then’s when you can use the trendline retest forex trading strategy if price ever comes back to the trendline that was broken previously.
- has a good risk:reward ratio when price really starts trending.
- its not complicated at all..the trading rules are simple and easy to understand and implement.
Disadvantages of The Trendline Retest Forex Trading Strategy
- sometime, price will break a trendline and will never come back to re-test it.
- sometime, price will break come to retest the trendline, cause a spike, take out your stop loss and then move in direction that your trade based on. That happens and its just the nature of forex trading so you got to expect that to happen.
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