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A common trading problem is that if you wait too long to enter a trade—until everything looks perfect—the trend is likely almost over. Figure 2 shows the start of an uptrend. Then, on a strong rally it makes a higher high followed by a higher low. This provides a high probability that the trend has shifted—at least temporarily. In this case, after the higher high, we need to wait for a pullback. As long as the pullback stays above the prior low we are looking for a long trade, because we now have a higher-high and higher-low, which means either a wave 3 preferably or wave c is about to unfold and we want to be a part of it.
Figure 3 shows the basic set-up. Based on the higher-higher, we want to go long, but need to wait for a pullback to do so. We let the pullback materialize, but as soon as the price starts moving higher again we take a long position. Figure 3 shows an entry point where a very strong up bar moves above the highs of prior pullback-bars, indicating the buying is resuming. A stop loss is placed just below the most recent low on the current pullback or above the recent high on the current pullback if looking to go short in a downtrend.
With binary options your profit is already set, but for those trading traditional markets, a Fibonacci Extension tool can be used. If the pullback is relatively shallow compared to the prior wave, as it is in Figure 4, exit at the As a general rule, use the first extension level which is above the prior high in an uptrend, as shown in Figure 4 or below the prior low in a downtrend. The rectangle at the This strategy takes advantage of what appears to be the middle of a trend. There is no way to know for sure when the trade is taken that it will work out.
The Set-Up To find the middle of an uptrend, you need a higher high and a higher low. To find the middle of a downtrend, you need a lower low and a lower high. Setup Figure 3 shows the basic set-up. Target Final Word This strategy takes advantage of what appears to be the middle of a trend.