Getting Started
Module 4: Core Day Trading Strategies
Here we’ll cover momentum trading, reversal trading, breakout trading, range-bound trading, and key chart patterns.
♻️ Market Cycles
Every pair moves in cycles:
Accumulation - (range before the move)
Expansion - (breaks out of the range)
Distribution - (tops out and ranges again)
Reversal - (the trend flip or theres a fake-out before continuation)
Matching your strategy to the right phase is critical.
📊 1. Ranging Market (Consolidation / Sideways)
Structure: Horizontal support and resistance; price bounces between levels.
Look For: Equal highs/lows, choppy candles, small bodies, wicks.
Volume: Typically lower, more volume helps to push price through the range.
Best Strategy: Fade the range — buy low & sell high as price reverts back to the mean.
Pairs/Times: Common during Asia session, pre-news, or before a breakout.
Trap: Breakout fake-outs (false pushes past structure that end up reversing).
📈 2. Trending Market
🟢 Uptrend (Bullish Trend)
Structure: Higher highs + higher lows (HH/HL).
Best Strategy: Buy when price pulls back to support zones.
Trap: Entering too late after an extended move → FOMO buys.
🔴 Downtrend (Bearish Trend)
Structure: Lower highs + lower lows (LH/LL).
Best Strategy: Sell rallies/pullbacks, use trendline + structure confluence.
Trap: Trying to catch bottoms early → fake reversals.
🛤️ 3. Ascending Channel (Bullish or Reversal Pattern)
Structure: Rising highs and rising lows, but within two parallel lines.
What It Signals: Bullish trend, but can weaken into reversal.
Trade Style:
Inside: Buy at channel support, sell at resistance.
Breakout: Look for breakout → continuation or breakdown → reversal.
Trap: Getting caught in false breakouts or buying after exhaustion.
📉 4. Descending Channel (Bearish or Reversal Pattern)
Structure: Lower highs and lower lows within parallel declining lines.
What It Signals: Bearish trend, but also often a bullish reversal setup.
Trade Style:
Inside: Sell at top of channel, buy at base if reversal signs appear.
Watch for: Bullish breakout → sharp rally.
Trap: Selling late into the move as momentum slows.
⬛ 5. Breakout Market (Expansion Phase)
Structure: Price violently breaks out of consolidation or key level.
Often Follows: Range → breakout → retest → trend.
Best Strategy: Trade with momentum, but only after confirmation (e.g., candle close above/below structure).
Trap: Jumping in too early → fakeout reversals.
🧊 6. Compression / Squeeze / Triangle
Structure: Price action tightens with lower highs + higher lows (symmetrical triangle).
Volume: Decreasing → then sudden burst.
Signal: Big move coming — watch for breakout with volume.
Best Strategy: Wait for breakout & retest OR position within structure if advanced.
Trap: Premature breakout entries without confirmation.
🔄 7. Reversal Structures
Double Top / Bottom
Two peaks or valleys at same level.
Reversal cue from trend → range → flip.
Head & Shoulders / Inverse H&S
Classic reversal with neckline break.
Watch volume + neckline retest.
V-Shaped Reversal
Sharp drop → fast bounce (no structure).
Often news or liquidity driven — hard to catch unless prepared.
Momentum Trading
Momentum trading involves riding the market’s direction when it shows strong, sustained movement. You’ll use higher timeframes (daily/4-hour) to confirm momentum and lower timeframes (15-minute or below) for precise entries.
How It Works:
Identify a clear trend (up or down) on a daily or 4-hour chart using price action (higher highs/lows for uptrends, lower highs/lows for downtrends).
Look for a pullback to a support/resistance level or trendline on a 15-minute chart.
Enter with a candlestick confirmation (e.g., pin bar, engulfing pattern).
Exit at the next 4-hour/daily support/resistance or use a trailing stop for larger moves (40+ pips).
Setup Example:
Pair: EUR/USD
Daily Chart: Shows an uptrend with higher highs and higher lows.
4-Hour Chart: Price pulls back to a support level at 1.1000.
15-Minute Chart: A bullish pin bar forms at 1.1000.
Trade: Buy with a limit order at 1.1000, stop loss at 1.0985 (15 pips below), target 1.1015 (15 pips) or the next 4-hour resistance at 1.1040 (40 pips).
Tip: Use a trailing stop if momentum continues past your first target.
Key Tips:
Trade in the direction of the higher timeframe trend to increase probability.
Avoid forcing trades in choppy markets—wait for clear momentum.
Take profits early (7–15 pips) to stay disciplined, extending to 40+ pips only in strong trends.
Why It Works: Momentum trading aligns with market participants’ (e.g., banks, hedge funds) buying or selling pressure, giving you a high-probability edge.
Reversal Trading
Reversal trading aims to catch price turns at key support/resistance levels, ideal for scalping quick moves or capturing larger reversals.
How It Works:
Identify a key support (for buys) or resistance (for sells) on a daily/4-hour chart where price has reversed multiple times.
On a 15-minute chart, look for price action signals (e.g., pin bar, engulfing pattern, doji) indicating rejection.
Enter with a limit order at the level, setting a stop loss beyond the level (e.g., 10–15 pips).
Exit at the next 4-hour/daily level, targeting 7–15 pips or more if a larger reversal occurs.
Setup Example:
Pair: USD/JPY
4-Hour Chart: Price approaches a strong resistance at 145.00, tested multiple times.
15-Minute Chart: A bearish engulfing pattern forms at 145.00.
Trade: Sell with a limit order at 145.00, stop loss at 145.15 (15 pips above), target 144.85 (15 pips) or the next support at 144.60 (40 pips).
Tip: Confirm reversals with strong price action and avoid trading in the middle of a range.
Key Tips:
Focus on levels with multiple prior rejections for higher reliability.
Be patient—reversals require strong confirmation to avoid false signals.
Manage risk tightly, as reversals can fail if momentum is too strong.
Why It Works: Reversals occur when large players defend key levels, creating predictable price action for precise entries.
Breakout Trading
Breakout trading capitalizes on price breaking through a key support/resistance level or chart pattern, signaling a potential strong move.
How It Works:
Identify a consolidation (e.g., a tight range, triangle, or channel) on a daily/4-hour chart near a key level.
Wait for a breakout (price closing above resistance or below support) with strong momentum (e.g., a large candle).
On a 15-minute chart, enter on a pullback to the breakout level with price action confirmation.
Set a stop loss beyond the breakout level (10–15 pips) and target the next 4-hour/daily level (7–15 pips or 40+ pips).
Setup Example:
Pair: GBP/USD
4-Hour Chart: Price consolidates in a tight range below resistance at 1.3000.
15-Minute Chart: Price breaks above 1.3000 with a strong bullish candle, then pulls back to 1.3000 with a bullish pin bar.
Trade: Buy at 1.3000, stop loss at 1.2985 (15 pips below), target 1.3015 (15 pips) or the next resistance at 1.3040 (40 pips).
Tip: Avoid breakouts during low-volatility sessions (e.g., Sydney) to reduce false signals.
Key Tips:
Wait for a pullback after the breakout for a safer entry.
Confirm breakouts with volume (if available) or strong candles to avoid traps.
Be cautious of news-driven spikes that can reverse quickly.
Why It Works: Breakouts reflect large players pushing price through key levels, creating momentum you can ride with disciplined entries.
Range-Bound Trading
Range-bound trading involves trading within a sideways market where price bounces between support and resistance.
How It Works:
Identify a range on a daily/4-hour chart where price bounces between a clear support and resistance zone (e.g., 50–100 pips apart).
On a 15-minute chart, buy at support or sell at resistance with price action confirmation (e.g., pin bar, engulfing).
Set a stop loss beyond the range (10–15 pips) and target the opposite side of the range (7–15 pips or more).
Avoid trading ranges during high-impact news, which can cause breakouts.
Setup Example:
Pair: AUD/USD
4-Hour Chart: Price ranges between support at 0.6700 and resistance at 0.6750.
15-Minute Chart: A bullish engulfing pattern forms at 0.6700.
Trade: Buy at 0.6700, stop loss at 0.6685 (15 pips below), target 0.6715 (15 pips) or 0.6750 (50 pips).
Tip: Exit early if price shows signs of breaking the range (e.g., strong momentum).
Key Tips:
Ranges are common in low-volatility sessions (e.g., Sydney/Tokyo).
Use tight stop losses to maximize reward-to-risk ratios.
Be ready to switch strategies if a breakout occurs.
Why It Works: Ranges provide predictable price action for scalping, as price respects support/resistance until a breakout occurs.
Chart Patterns
Chart patterns are formations that signal potential reversals or continuations, enhancing your probable setups. Focus on these for day trading:
Flags:
A continuation pattern after a strong trend, showing a brief consolidation (like a flag on a pole).
Bullish Flag: Forms during an uptrend; buy on a breakout above the flag with a 15-minute confirmation.
Bearish Flag: Forms during a downtrend; sell on a breakout below.
Example: EUR/USD rallies to 1.1050, consolidates in a tight flag on a 4-hour chart, then breaks higher. Buy on a 15-minute pullback to 1.1050, targeting 1.1070 (20 pips).
Wedges:
A narrowing pattern signaling a reversal or continuation.
Rising Wedge: Bearish reversal in an uptrend; sell on a break below the lower trendline.
Falling Wedge: Bullish reversal in a downtrend; buy on a break above.
Example: USD/CAD forms a rising wedge at 1.3800 resistance on a 4-hour chart. Sell on a 15-minute break below the wedge, targeting 1.3780 (20 pips).
Double Tops/Bottoms:
Reversal patterns at key levels.
Double Top: Two peaks at resistance (e.g., 1.3000) signal a bearish reversal; sell on a break below the neckline (low between peaks).
Double Bottom: Two lows at support signal a bullish reversal; buy on a break above the neckline.
Example: GBP/USD forms a double top at 1.3100 on a 4-hour chart. Sell on a 15-minute break below the neckline at 1.3080, targeting 1.3060 (20 pips).
Trading Application:
Identify patterns on 4-hour/daily charts for direction.
Enter on 15-minute charts with price action confirmation (e.g., pin bar at a breakout).
Set stop losses beyond the pattern (10–15 pips) and target the next support/resistance level.
Key Takeaways
Momentum Trading: Ride strong trends, entering on 15-minute pullbacks to support/resistance or trendlines, targeting 7–15 pips or more.
Reversal Trading: Catch turns at key levels with strong price action, using tight stops and disciplined exits.
Breakout Trading: Trade breaks of consolidation with pullback entries, avoiding false breakouts during low volatility.
Range-Bound Trading: Scalp within a range, buying at support and selling at resistance, with quick profit-taking.
Chart Patterns: Use flags, wedges, and double tops/bottoms to confirm setups, entering on 15-minute charts for precision.
Your Edge: Combine these strategies with naked forex principles—focus on price action, support/resistance, and disciplined profit-taking (7–15 pips or 40+ pips with trailing stops). Avoid greed by sticking to your plan.
In Module 5, we’ll tackle self-awareness, discipline, and psychology—the mental game that separates successful traders from the rest.