Use this strategy on the 1-minute EURUSD chart during the London and/or US session. I’d wait till the London session gets going, so the strategy is best applied between 3 AM EST and 1 PM EST.
This strategy typically generates at least one trade during the time frame discussed, often more. Sometimes it will generate several trades during the London/New York overlap period (8 AM EST to noon EST), but not every day.
This is a price action reversal strategy, designed to get into a trade when a reversal is likely occurring. Not every reversal/tech turn generates a trade signal though. We are waiting for specific conditions that help put the odds in our favor.
While I call this a strategy, it is actually a concept or pattern. Something to look for, which could potentially be traded in different ways. I provide several ways the pattern can be used in this article.
The Technical Turnaround EURUSD Day Trading Strategy
The basic concept of the strategy is that we need a Trending wave to be erased by a price move in the opposite direction. For example, there is an uptrend, and the last wave up is followed by a move down that almost reaches or exceeds the start of the up wave. Or, in a downtrend, a down wave is erased by an up wave. In this case, the price moves higher to almost reach or exceed where the down wave started.
This move in the opposite direction of the trend is the technical turnaround, because the trend could be changing direction.
The price must then make at least one smaller price swing before consolidating. [Update: I no longer require a consolidation, although waiting for one is a good option when starting out. I simply need the price to start moving back in the direction of the new trend]
The price must then break out of the consolidation in the new direction to trigger a trade.
As you can see, the guidelines are loose, leaving room for subtle differences in how the pattern looks and how it is traded (no consolidation, or a consolidation, for example).
A stop loss goes just outside the opposite side of the consolidation from the breakout.
The simplest profit target is placed at a 2:1 reward:risk. For example, if risking 3 pips on a trade (approximate height of consolidation), place a profit target 6 pips from the entry. If risking 6 pips, the target goes at 12 pips.
The pattern doesn’t always necessarily have to occur in a trend either. Really, any time a price wave in one direction is fully (or nearly fully) retraced by a wave in the other direction, we have a possible tech-turn or TT for short.
Here’s an example of a reversal to the downside. The price falls back to a prior swing low and has a couple of swings before consolidating. The price then breaks the consolidation to the downside, triggering a trade. In this case, the pattern is also a Double Pump or Double Pump variation.
This trade occurs during the London session.
Charts from TradingView.
The chart above shows a fairly large pattern, where a large up move was fully retraced by a large down move.
The trade had 2.4 pips of risk, with an exit at a 4.8 pip target for a 2:1 reward:risk. If risking 1% of the account, the winning trade increases the account by 2% (less commissions, if applicable).
Following the trade above, there was another big tech turn (chart below), but it lacked the requirement of having a price swing between the tech turn and consolidation. It was still useful for signaling the change in trend direction though. The next tech turn also signaled the trend change, but there was no trade because it didn’t meet the basic requirements. But once again, it still helped with spotting the direction change.
The next trade came after the start of the US session (still chart above, at far right). Some unexpected news occurred just after the entry resulting in a big move. But the trade still captured a 2% gain to the account. The price had been moving lower, and then the last down wave is fully retraced by an up wave. The price has another price swing and doesn’t take out the prior low. The price moves up slightly and consolidates. The price breaks the consolidation to the upside triggering a trade.
Here is another couple of examples of the strategy that occurred the following day.
And a few more, so you can see several ways the pattern develops into trading opportunities. Each pattern is slightly different, yet we still have a tech turn, another smaller price swing, and then a consolidation.
This strategy doesn’t always result in a move in the expected direction. When the price moves the other way it is called a Failed Technical Turnaround. Learn that strategy as well to start finding a lot more trades.
Anytime we have a breakout in a strategy, we also need to be aware of false breakouts. While false breakouts frustrate many traders, they can provide loads of opportunity too!
If you look at these charts, many of these trades align with strategies you already know—RTs, RBs and TCs for example—if you follow my daily posts on Twitter, read this blog, or have studied the EURUSD Day Trading Course. Once we learn to spot tech turns, there are many different entry methods we can use to enter trades. You may wish to come up with your own entry, stop loss, and target methods to capitalize on these occurrences. This article is just providing a few examples of how to do it.
Utilizing the Technical Turnaround Day Trading Strategy Effectively
The point is not to trade every tech turn. There will be lots. Rather, looking for tech turns gets you thinking and strategizing about price action. It lets you see potential changes in trend direction. That’s all a TT is; a possible trend change.
During an uptrend, the price makes higher swing lows. But when a TT occurs, the price just matched or exceeded a prior swing low. That’s a warning. In a downtrend, the price is making lower swing highs, but when a TT happens, the price just matched or exceeded a swing high.
This provides us with information. We add in other rules to create a trading opportunity. I like to let another price wave unfold to see how the price acts and to see if the price action still indicates a possible trend reversal (or least a short-term move in the new direction). The consolidation then provides a convenient trade trigger (via a breakout of it) and a stop loss location (on the other side of it). There are other types of trade triggers, not just consolidation breakouts.
Once you understand what a tech turn is telling you, you can customize all sorts of strategies and rules for trading around it. Maybe you don’t care about consolidations, so you don’t need that requirement, but you may need an indicator to trigger you into a trade. The point is seeing the potential shift in direction, and then acting on it as you specified in your trading plan.
The technique can be applied to small waves or large, but if you are going to trade a tech turn, make sure the waves are large enough to provide you with at least a 1.5:1 reward to risk based on your stop loss and target, and ideally 2:1 or greater.
A technical turnaround doesn’t always result in price reversing. When a reversal fails, we may have a failed tech turn opportunity.
A number of the strategies in the EURUSD Day Trading Course are based on this concept. Rounded top and bottoms, for example, don’t require a consolidation, but the strategy is based on seeing that tech turn and the trend likely reversing so we can jump on the new trend early.
Does the Technical Turnaround Strategy Work on Other Markets, Pairs, and Timeframes?
Look and see! Pull up a chart and see if you can spot the pattern. It occurs in other markets, pairs, and timeframes, but you will want to verify that for yourself first.
You may need to alter the strategy idea slightly, as not all markets move exactly the same. But the idea of the potential trend reversal is important regardless of what market or timeframe you trade.
Technical Turnaround Day Trading Strategy – Thoughts and Alterations
I prefer to be in and out of my day trades rather quickly. This is because I typically only trade for one hour or two hours when I do day trade.
As you can see, since we are trading a reversal strategy, the price will often continue to run in the new direction which means you could use a bigger target or a form of trailing stop loss that potentially captures more profit when a big move occurs. Of course, this may also mean having to get out with a smaller profit or a loss if the price reverses again while you are waiting for that big gain.
Look for examples of the strategy playing out on your own charts, then decide how you want to utilize the strategy/pattern, creating your own personal rules. Practice in a demo account and make sure you can trade the strategy profitability before attempting it with real money.
My EURUSD Day Trading Course teaches you how to day trade the EURUSD in 2 hours or less a day, with the potential to make double-digit percentage returns each month (with practice) with patterns that tend to occur almost every day.
Cory Mitchell, CMT
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.