One of the best ways to catch early reversals with amazing risk-reward ratio.
The double trend line principle is one of the classical strategies that every trader should have in his or her toolbox.
The simplicity of this trading strategy allows any type of trader to take advantage of it’s power.
Main Idea behind this trading method:
The power and valuable properties of something so simple as the Trend Line is well known fact. The idea of the strategy is to pick the ongoing trend by drawing a trend line, either from the highs or from the lows, depending on the direction of the current trend.
Once the you have identified the trend, you need to wait for pullbacks towards the trend line you just drew.
Additional filters and confirmations are applied in order to detect the possible end of the pullback, such as divergence.
Now you know in which direction to trade. You have confirmations that the pullback is about to end. It is time to look for entries.
Best part is that the risk-reward ratio is usually 1:3 or more depending of course on the given situation and the precise method of the entry.
Different money and risk management strategies might be applied according to your risk tolerance, account size and final goals. Once you start achieving at least 60% success rate with minimum of 1:2 risk reward ratio you can look for improvement.
NOTE – remember that as a rule of the thumb, the higher the risk:reward ratio is, the lower the success rate. And that makes a lot of sense if you think about it.