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The obvious entry trigger for the bullish kangaroo tail is a buy stop a few pips above the high of the kangaroo tail. Once the market pushes through the high of the kangaroo tail, it will trigger the buy stop, triggering an entry for the trade. For the bearish kangaroo tails, a similar entry works well: a sell stop a few pips below the low of the kangaroo tail.
Many traders wonder if a different entry technique may lead to greater profits. Specifically, some traders wish to enter the kangaroo tail after the market has retraced or traded in the wrong direction. This may seem like a good idea because the entry may be closer to the stop loss and, therefore, may reduce the risk on the trade. However, the suggested buy stop or sell stop entry strategy is a much safer strategy because it will avoid many of the losing trades.
Often a failed kangaroo tail will never see the market trade beyond the recommended entry price. For bullish kangaroo tails, if the market keeps falling lower, it may never trade higher than the high of the kangaroo tail (see Figure 8.15).
FIGURE 8.15 This bullish kangaroo tail on the AUD/JPY four-hour chart would have been a losing trade, as hinted by the giant bearish candlesticks prior to the kangaroo tail.
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Likewise, for bearish kangaroo tails, if the market keeps trading higher, it will usually never trade lower than the low of the kangaroo tail (see Figure 8.16).
FIGURE 8.16 This is a classic failed bearish kangaroo tail on the USD/CHF fourhour chart. Notice how the market never trades lower than the low of the kangaroo tail. Using a sell stop below the low of this kangaroo tail enables the naked trader to avoid a certain loss.
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Thus, it is much safer to enter kangaroo tails with a buy stop (for bullish kangaroo tails) or a sell stop (for bearish kangaroo tails). Using a buy stop above the high (for bullish kangaroo tails) or a sell stop below the low (for bearish kangaroo tails) will delay the trade entry until the market moves in the expected direction. This simple trade entry technique will avoid many losing trades.
[You must be registered and logged in to see this link.]
Many traders wonder if a different entry technique may lead to greater profits. Specifically, some traders wish to enter the kangaroo tail after the market has retraced or traded in the wrong direction. This may seem like a good idea because the entry may be closer to the stop loss and, therefore, may reduce the risk on the trade. However, the suggested buy stop or sell stop entry strategy is a much safer strategy because it will avoid many of the losing trades.
Often a failed kangaroo tail will never see the market trade beyond the recommended entry price. For bullish kangaroo tails, if the market keeps falling lower, it may never trade higher than the high of the kangaroo tail (see Figure 8.15).
FIGURE 8.15 This bullish kangaroo tail on the AUD/JPY four-hour chart would have been a losing trade, as hinted by the giant bearish candlesticks prior to the kangaroo tail.
[You must be registered and logged in to see this image.]
Likewise, for bearish kangaroo tails, if the market keeps trading higher, it will usually never trade lower than the low of the kangaroo tail (see Figure 8.16).
FIGURE 8.16 This is a classic failed bearish kangaroo tail on the USD/CHF fourhour chart. Notice how the market never trades lower than the low of the kangaroo tail. Using a sell stop below the low of this kangaroo tail enables the naked trader to avoid a certain loss.
[You must be registered and logged in to see this image.]
Thus, it is much safer to enter kangaroo tails with a buy stop (for bullish kangaroo tails) or a sell stop (for bearish kangaroo tails). Using a buy stop above the high (for bullish kangaroo tails) or a sell stop below the low (for bearish kangaroo tails) will delay the trade entry until the market moves in the expected direction. This simple trade entry technique will avoid many losing trades.
[You must be registered and logged in to see this link.]
