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Step 2: 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.

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
  • Market direction is down

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.

 

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

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.

  1. Vertical line shows where you moved to the 5 minute time frame
  2. A down fractal after the vertical line has appeared

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.

 

  1. Vertical line shows where you moved to the 5 minute time frame
  2. A down fractal after the vertical line
  3. Price has broken through that most recent down fractal 2 — this 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. See next lesson.

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.

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

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.

  1. Vertical line shows where you moved to the 5 minute time frame
  2. An up fractal after the vertical line has appeared

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.

  1. Vertical line shows where you moved to the 5 minute time frame
  2. An up fractal after the vertical line
  3. Price has broken through that most recent up fractal 2 — this is your trading opportunity