Live Backside Trade Setup on the USD/CAD – Powerful Breakout Strategy
Backside Trade Setup On The USD/CAD
A backside setup is the primary trading strategy we use to catch ‘breakout’ type moves.
Definition
A backside trade would only take place after a key level has been broken, either to the upside or downside. The popular connotation for this is stated as “break and retest”. Therefore, a backside trade setup is when the price breaks a level and then retests that level from the opposite side.
Key Components
• Quality level
You need a good level. As In the example below, I prefer a wall, a level formed around a zone that has rejected multiple times. More often than not, the longer the price stays in a range the more likely price it will respect the range after a break occurs.
• Momentum
It’s also nice if you have momentum in that direction. In example below we had a push down a few days prior to the breakout. That push down added to my confidence that price would likely continue in that direction over the coming days.
• Clean break
This is the final piece of this setup. While the principal behind this rule is key to understand, there are situations where I still consider the level when a traditional clean break does NOT occur. This trade provides a good example of when I might look to make an allowance.
First let’s explain the traditional clean break. A clean break is when the market breaks a manipulation point and closes beyond it (15M candle). After closing beyond the manipulation point, there cannot be a 15M candle that closes back up above/below the level. After 2 consecutive 15M candles open & close beyond the manipulation point the clean break is complete.
The picture below is a good example of when I might deviate from the pure mechanical application as stated above. In short, if I’m going to make an allowance it’s going to be from a very clear manipulation point. Additionally I primarily stick to a single candle rebreak of the manipulation point as illustrated in point #1 from the chart.
The idea here is to have a push through the level that isn’t rejected by immediate volume pushing price back in the opposite direction. By seeing the market break through and run away from the manipulation point, it gives us a strong indication of further downside.
By trading backside test of key manipulation points, we give ourselves a chance at catching the breakout with a high reward to risk ratio based entry.
Example:
USD/CAD Short - April 26th, 2021
As you can see in the chart above the backside short was taken, the stop loss was moved to break even when 60% of the take profit was achieved. The market then continued to the downside resulting in a full take profit.
I hope you enjoyed this recent trade breakdown. Please give any comments, questions, or content requests below.
Happy trading,
-Kevin