How many times have you encountered a situation where the price touched the stop loss then bounced back to hit the take profit as originally predicted. It’s uncomfortable, isn’t it? So how do we prevent such ironic situations from happening again? In this article, we will solve that problem with the Price Action Re-Entry strategy.
What is Re-Entry?
Re-Entry trading is a strategy with a high probability of winning in Price Action. It is a simple yet powerful concept that can be applied to any market.
Before entering the strategy, try to see if the following situation is familiar or not.
- After analyzing the market carefully, you placed a careful setup with a Pin bar candle
- According to the basic trading rules, you put a stop loss right below the bottom of the pin bar
- Not long after that, your order touched the stop-loss
- Immediately, the price bounced back and increased as you predicted. It’s very angry, right?
In that case, would you dare to re-enter, as soon as you see that your beautiful Pin Bar order has just been stopped out? You feel like you made a mistake in that order. In fact, you are not wrong when you enter the order correctly by trading rules because trading is a game of probability.
In cases like this, the idea is that we will ignore the opportunity to enter the first position and only enter when the price re-entries, i.e. test the zone again. Thus, the winning chance of your order will be much higher.
A Price Action Re-Entry strategy must have the following 4 basic steps.
- Find 1 trading setup according to Price Action that you love. It could be Pin Bar, Inside Bar, Fakey, or any other setup.
- Do not enter orders at this first setup
- Wait for the traders who entered the previous order to be stopped out
- Enter as soon as the market reverses and goes in the right direction of the initial setup
When traders are stopped out after entering the order according to the first setup, they will look for the opportunity to re-enter, plus other traders who have not had the opportunity to enter the first order. These factors will create impetus for the price to move in the right direction according to the initial setup.
Rules for entering orders with the Price Action Re-Entry strategy
In this Re-Entry strategy example, I will use Pin Bar for entry. You can replace it with many different settings that are comfortable to enter.
Buy entry rules:
- Identify Pin Bar setups at a good position and in line with the trend (Bullish Pin Bar in an uptrend)
- The next candle must cross above the top of this Pin Bar
- The price must break below the bottom of the Pin Bar used to enter the order but doesn’t go too far.
- Buy when the price crosses any bullish candle. That is, if the current candle is a bullish candle when it closes, place a buy stop order a bit above its top. Otherwise, if the current candle is bearish, wait until a bullish candle appears and place a buy stop on the top of that candle
Sell entry rules:
- Identify a Bearish Pin Bar in a downtrend at nice positions (resistance)
- The next candle must cross below the bottom of this pin bar
- Next, the price must break above the top of the Pin Bar for entry, but not too far
- Sell when the price crosses any bearish candle.
4 conditions to activate the Re-Entry Strategy
- First Setup (do not enter this setup)
- The first setup is activated
- The first setup touches the stop-loss
- Confirm that the first setup is just a false alarm (this time we Re-Entry)
How to trade with the Price Action Re-Entry strategy
In the examples below, we use the 20 EMA in combination with the Pin Bar setup as an entry signal
Price Action Re-Entry winning order of EUR/USD H1 chart
- The Bullish Pin Bar setup appeared at the 20 EMA, showing a very good rejection of the EMA. This was a nice setup in Price Action. But since we are following the Price Action Re-Entry strategy, we will not enter this setup.
- This setup was triggered when the price broke above the first pin bar
- Next, the price dropped and triggered the stop loss of the Pin Bar setup used to enter orders, causing traders following this setup to be stopped out.
- The price recovered quickly and formed a 2nd Bullish Pin Bar. This was our entry opportunity so placed a buy stop on top of this pin bar.
You could see that the price rose immediately upon the break of the 2nd pin bar.
Price Action Re-Entry losing order of AUD/USD H1 chart
- Bullish Pin bar touched the EMA. This was the first setup.
- This Pin bar was activated and some traders bought with a stop loss below the pin bar
- The price spiked in line with the pin bar. So this first setup was successful but now I have not entered the order yet
- When the green candle I was waiting for appeared, I entered a buy-stop order at the top of this green candle
- However, the price didn’t move up as expected, that’s because the upward momentum from the first pin bar appeared and ended
However, if you are a little observant, you can spot the Re-Entry in this losing order appearing below the EMA. It is a sign that the upward momentum was no longer there. In the first example, the Re-Entry candle is still above the EMA. So the EMA has the effect of filtering out a very good setup.
Overall, the Re-Entry trading strategy is simple but offers a higher chance of winning than any price action pattern. We will enter the trade right after the initial setup fails. It helps us avoid losses when the price corrects and there isn’t a real reversal.
The Re-Entry trading strategy is also very flexible as you can use any price pattern as the basis for it. The main drawback is fewer trading opportunities. Sometimes, the market doesn’t return to the stop out of the previous setup, causing you to lose your trading opportunity. However, that is something you must accept when using the Price Action Re-Entry strategy.
If you tend to over-trade, I highly recommend you to try this Re-Entry trading strategy. It will help you control the over-trade habit and limit the risk to a minimum.
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