The Snap-Back is a EURUSD day trading strategy for the 1-minute chart.
I trade this strategy between about 8:15 am EST and 11 am EST. I use a 2.5:1 reward:risk and I let the price hit the stop loss or target. I don’t exit early unless there is a high impact news announcement or another valid trade signal from one of my strategies occurs in the opposite direction (not very often).
Snap-Back EURUSD Day Trading Strategy
A snap-back occurs in the trend direction. The trend direction is determined by the most recent impulse/Trending wave. This is important right after a reversal, but typically the trend direction is fairly easy to spot.
A snap-back in a downtrend looks like an “h”. It is composed of a few key elements:
- Downtrend in play.
- A sharp drop.
- A sharp rally that stays below where the drop started.
- Another sharp drop back to the recent low (bottom of “h”)
- At least a two-bar/candle pause near the low of h…slightly above or below is fine.
- Enter on a breakout below the low of the two-bar pause. This is the default entry, but there are several variations that can occur if the price moves up slightly before dropping. A few of these variations are discussed in the video below.
- From the first bottom to the second bottom (including consolidation/pause), the pattern typically takes about 8 to 16 minutes to form. Much longer than that and the pattern is probably too spread out or the price waves aren’t sharp enough.
The chart below shows the basic pattern. There are some other trades and strategies on this chart as well, but the snap-back is marked with the green line and is the last trade on the right. This one occurred after I had finished trading for the day but it still occurred during that prime EURUSD day trading window, at about 11 am EST (9 am on this chart, which is MST).
There is an h pattern that matches the criteria mentioned above. Wait for at least a 2-bar pause at the bottom of the h. Enter short when the price drops below the low of the 2-bar pause. During the 2-bar pause, measure the height of the 2-bar pause, add your spread, and this is your stop loss distance. Multiply by 2.5 to get the target price. [If you have a larger spread than 0.5 pips, you may need to reduce the reward:risk. The criteria I use are based on having a small spread.]
Here are more examples, with slight variations on the entry in some of them. In the middle of the chart, there are three Snap-Backs in a row, each one leading into the next.
During an uptrend, the pattern looks like a strong up move with a “u” on the end. The example below marks the importance of understanding trending waves; I included some notes on the chart. The same criteria apply as listed above, except now everything is flipped—strong up move, smaller but sharp down move, sharp rally back to high, two bar or longer pause, and then a breakout higher above the two-bar high.
Here is a video that further explains the strategy.
Practicing and Fine-Tuning Before Trading With Real Capital
Go through many charts to find examples of the pattern. This should be during the time of day YOU trade. Use a 1-minute chart and account for your spread when assessing stop loss levels and profit targets. See how the strategy would have faired for you, based on the patterns you see. Don’t trade the Snap-Back strategy until you find a way to make it profitable for you and your circumstances.
The 1-minute chart is the only time frame I day trade, and the EURUSD is the only pair I day trade. If you trade other time frames, pairs, at a different time of the day, or trade with a large spread, I have no idea if this strategy will work for you. I also have no idea what your eyes see that mine don’t, or vice versa. This is why you need to go through your charts and practice the strategy before risking real capital with it.
If it is not profitable for you, but you like the concept, dig into why certain trades worked and others didn’t. Possibly you were trading against a larger trend, or you didn’t check for news, or the price waves were too small, or you had your stop loss in the wrong place. Maybe your forex broker has a larger spread, and so you need to reduce your reward:risk to 2:1 or 1.75:1 in order to make the strategy profitable.
Find what works for YOU, creating your own guidelines for how YOU will trade the strategy. Put in the work to make it your own, so you develop the confidence to trade it well.
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By Cory Mitchell, CMT
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Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.