A slingshot reversal is a reliable forex trading pattern and is defined as a false breakout + reversal and occurs when a major support or resistance point is broken but the currency price does not hold below support or above resistance and moves back into it's previous trading range. The below picture shows a slingshot reversal pattern for the GBP/USD on the 1 hour chart.
On May 15th, the GBP/USD finally broke out it's trading range between 1.9845 (1) and 1.9762 (2). This break below support created a wave of new downside pressure as longs cut their positions and traders sold the technical break below support.
Then a slingshot reversal pattern took place as the cable sellers ran out of steam below 1.9733 (3) and buyers gained the upper hand, and very soon, the GBP/USD start gaining back above it's previous support level only to move higher to 1.9870.
How to trade the slingshot reversal pattern:
1) Try to identify important levels of support and resistance that many forex traders are closely watching
2) When trading 1 hour charts, wait for the market to trade 10 pips below or above the key level (either support or resistance); then put a stop entry order 10 pips above or below that KEY level.
In our case:
When 1.9752 (1.9762 - 10 pips) trades, place an order to BUY cable at 1.9772 (4).
3) If the order is executed, then place your stop 3 pips below it's previous low(3) at 1.9730.
4) Calculating your profit target for 1.5:1 risk-to-reward ratio:
Pips at risk: 1.9772-1.9730 = 42 pips. Here's our take profit target: 42 pips x 1.5= 63 pips (5)
Summary:
The forex slingshot reversal is a reliable pattern with a strong logic behind it because of it's effect on market positioning. Look for major support and resistance levels that could yield forex slingshot reversals.
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