What is the Pop ‘n’ Stop Trading Strategy?
The Pop ‘n’ Stop is a forex trading strategy based on breakouts after the price has been trading within a tight range.
The price Pops out of the range then slows down in a manner as if it is stopping, then the trend continues in the direction of the breakout.
It is a simple and probably the best strategy to trade breakouts.
The Principle Behind the Pop ‘n’ Stop Trading Strategy.
As I always say, simple forex trading strategies must have simple principles behind them.
The Pop ‘n’ Stop forex trading strategy is no exception.
Just to borrow from our previous tutorials, the price of an asset can either be trending upwards, downwards or sideways.
Uptrends and Downtrends are easily identified and a directional bias can easily be established in such trends.
Sideways trends, however, may not be suitable in establishing a directional bias because prices move within a channel or a range.
The only time directional bias can be determined in a sideways trend or a ranging market is when the price breaks out of the range.
Breaking out of the range, however, does not guarantee that you will always profit from the move.
Most times you will find yourself having been left behind by the breakout even if you keep your eyes glued on the screen.
Attempts to join the trend in the direction of the breakout may prove futile because it may be too late into the trend and a reversal may occur, trapping you in a losing trade.
Trading breakouts then becomes a risky endeavor because of bull and bear traps or even fake outs that may lure you into a trade only to lose.
This is where the Pop ‘n’ Stop Forex trading strategy comes to your rescue.
For a market to qualify to be traded using the Pop ‘n’ Stop trading strategy, several prerequisites have to be met:-
- There must be a tight range within which the price has been traded.
- The price must have broken out of the tight range upwards or downwards (Pop)
- The price must have tried to slow or stop or reverse (Stop)
- As the price slows, stops, or reverses, it must not break the newly established support or resistance level.
If the above prerequisites are met, then you can execute Buy and Sell trades using the Pop ‘n’ Stop forex trading strategy.
- If prices break out of the range upwards and the conditions mentioned above are met, then the uptrend is bound to continue.
- If prices break out of the range downwards and the above conditions are met, then the downtrend is expected to continue.
A very simple principle indeed, or is it?
Let us now proceed to reveal how we can actually make money trading this simple forex trading strategy.
How to Trade Forex using the Pop ‘n’ Stop Trading Strategy.
No matter how good it is, if it doesn’t make you money, a strategy is worthless.
We now need to know how we can actually maximize our profits on the Forex Market trading one of the best forex trading strategies – the Pop ‘n’ Stop Trading Strategy.
Follow these simple steps to make money trading the Pop ‘n’ Stop Trading Strategy:-
- Identify a Ranging Market.
- Wait for the Price to Break out of the Range (Pop).
- See that the price has slown, Reverse, or Stop (Stop).
- Wait for Signal Confirmation.
- Enter Buy or Sell Position.
- Adjust your Stop Loss.
- Adjust your Take Profit.
1. Ranging Market Identification.
A ranging market is the first prerequisite to trading using the strategy so identify one.
It is quite simple to do so – you will be looking out for support and resistance zones which seem to be respected by the price at least thrice.
What I mean is a zone where the price has seemed not to break upwards at least for three attempts for resistance and a zone where the price has failed to break downwards after at least three attempts for support.
If you successfully manage to identify such zones, then you have a ranging market and are ready for the next step.
2. Breakout (Pop).
Remain calm and just watch until the price breaks out or Pops out of the range either upwards or downwards.
An upward breakout will partially point to the beginning of an uptrend while a downward breakout will partially signify the start of a downtrend.
The word ‘partially’ is not by any means misplaced or just a filler because you are yet to establish whether what you can see will amount to an uptrend or downtrend.
3. Reverse (Stop).
The words slowing and stopping simply mean that the price, after breaking or popping out of the range, tries to reverse towards the range.
If the price broke out of the range upwards, it must try to reverse downwards towards the range for some time.
Conversely, if the price broke out of the range downwards, it must try to reverse upwards towards the range for some time.
Once you observe this, you still have a confirmation to do before you enter the market – the next step.
4. Signal Confirmation.
The price broke out of the range upwards and tried to reverse downwards for a while.
To confirm that the uptrend will continue, then the last candlestick of the reversal must close above the previous resistance level which has now become the new support level.
On the other hand, say the price broke out of the range downwards and tried to reverse upwards for a while.
Downtrend continuation is confirmed when the last candlestick of the reversal closes still below the previous support level which has now become the new resistance level.
5. Buy or Sell Position.
A confirmed upward breakout will call for a Buy position while a confirmed downward breakout calls for a Sell position.
6. Stop Loss Adjustment.
Fake outs can be real sabotage.
Place your protective Stop Loss just below the signal candlestick for a Buy position and just above the signal candlestick for a Sell position. 2-5 Pips will be enough to risk.
7. Take Profit Adjustment.
A confirmed uptrend or downtrend after a breakout mostly lasts the same height as the size of the range. You can measure how high the range is and then place your Take Profit the same Pips from the entry point.
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