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Forex Chart Basics Forex Daily Topic Forex Price-Action Strategies

Spotting Out Support/Resistance is an Art

Support/Resistance levels are one of the most important factors in trading. In today’s lesson, we are going to demonstrate an example of adjustment in determining the support/resistance level.

Forex market gets volatile from time to time. It often produces spikes. Sometimes traders have to count those spikes to determine support/resistance level, and sometimes they do not have to do that. We try to learn when we have to count, and when we do not have to count those.

This is an H1 chart. However, any chart may look like this. If we are to draw support/resistance levels here, we may find out the two most significant points where the price bounces and where it gets a rejection from. Let us proceed to the next chart with those two lines.

Look at the level of drawn support. The price bounces at the level and produces a bullish inside bar. It comes back at the level and bounces twice. At the second bounce, it produces a long lower shadow and heads towards the North. We may skip counting the spike here and draw the level of support at where the price produces a bullish inside bar and bounces twice later.

Look at the level of resistance. This is where we have counted spikes since the price reacts at the level earlier. However, we may have to adjust it later. We will be able to find this out later as far as price action is concerned.

When the price comes back down, it breaches the level of support and produces a good bullish candle. However, there is a gap, and the price goes back within the previous level of support. Thus, we may still consider the drawn level as a significant level of support.

The price heads towards the North and breaches the level of drawn resistance. The price comes back within the drawn level again. The drawn level is still a significant level of resistance since the price reacts to it. However, we have a new highest high, which must be counted.

The price heads towards the South and reacts to the level of drawn support again. Upon producing a bullish inside bar, it heads towards the North again. Here are two questions.

  1. Where would you set your take profit level as a buyer?
  2. Do you have anything else to do here?

As a buyer, you may consider taking your profit at the previously drawn level. Here we have drawn the level of resistance with a little adjustment. Have you noticed it? Yes, this is what you have to do. Spotting out significant points and monitoring price action around them are two most important things to be able to make adjustments with the support/resistance level. To be able to trade accordingly, we often need to do this. Thus, we must learn the art of adjusting the support/resistance level.

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Forex Basic Strategies Forex Daily Topic

Significance of Breakout Confirmation or Reversal at Pullback

Breakout trading is one of the most widely used trading strategies in the Forex market. Breakout confirmation is equally important. Without breakout confirmation, a breakout may not work in favor of the traders in many cases. Thus, if we want to have a tremendous rate of winning, we may wait for breakout confirmation or reversal at pullback before taking entry. In today’s lesson, we are going to demonstrate an example of this.

The price after being rejected at a resistance level heads towards the South. It produces a bullish inside bar and heads towards the North again. The momentum suggests that the price may make a breakout at the level of resistance. Breakout traders are to keep an eye on the pair to get a breakout followed by breakout confirmation or reversal candle at the pullback to go long on the pair.

The last candle breaches through the level of resistance. Candle’s attributes suggest that this is an ideal breakout candle. The candle barley has the upper shadow. The breakout traders are to wait for either for the next candle to close above the breakout candle or the price to come back at the breakout level to consolidate and produce a bullish reversal candle to offer them a long entry.

The price does not head towards the North. It comes back at the breakout level closing within the breakout level. The breakout is still valid. However, the buyers must wait to get a bullish engulfing candle to close above consolidation resistance to trigger a long entry by setting stop loss below the breakout level. Let us proceed to the next chart to find out what happens next.

The price breaches the level of support and closes well below the breakout level. The sellers may take control soon in the pair. Traders taking a long entry right after the breakout candle closing are to have a loss here. If they set stop loss below the lowest low, the risk-reward would not be lucrative. When the price breaches a breakout level, it usually generates more momentum and changes its trend. Let us see what happens here.

The price goes back to the breakout level. This time it makes a bullish correction. The equation changes completely another way round. If the chart produces a bearish engulfing candle closing below consolidation support, the sellers may go short and drive the price towards the lowest low.

The chart produces a bearish engulfing candle followed by another strong bearish candle. It looks like a different ball game completely now. It is now the sellers’ territory.

In the bullish market, the chart does not produce a bullish reversal candle; thus, the price gets bearish. In the bearish market, it produces a bearish reversal candle (engulfing) and offers entry to the sellers. By taking entry upon breakout confirmation, we may not find as many entries as we would like, but it gets us more consistency in winning trades.

Categories
Forex Price-Action Strategies

A Pair Offering Multiple Entries on Different Charts

In today’s lesson, we are going to demonstrate an example of a chart, which ends up offering two breakout entries for the price action traders. There is a saying, “do not put all your eggs in the same basket.” Forex traders are to maintain this as well. However, sometimes we may have to do things a bit differently. Let us find out why and how.

This is a daily chart. The chart shows that a bearish engulfing candle followed by a bullish inside bar sets a strong bearish tone in the chart. If a bearish candle closes below consolidation support, the sellers may go short on the pair.

Here it comes. The last candle on this chart closes below consolidation support. This is an explicit breakout. The daily breakout traders may trigger a short entry right after the candle closes by setting their stop loss above the signal candle’s highest high and by setting their take profit with 1 R.

Here is something interesting you may have noticed. Since the daily chart is bearish biased, the H4 chart shall be bearish as well. Let us flip over to the H4 chart.

This is how the H4 chart looks. The price consolidates and produces a bearish reversal candle already, although it is not a deep consolidation. Let us not talk about it. Let us proceed to the next chart.

The last candle comes out as a bullish inside bar. This time there is a deep consolidation as well. If the chart produces a bearish engulfing candle, the sellers may trigger a short entry. Let us not forget that the daily breakout traders have already taken an entry.

The H4 chart produces a beautiful bearish engulfing candle closing below consolidation support. The H4 breakout traders may trigger a short entry right after the last candle closes by setting stop-loss above the signal candle’s highest high and by setting take profit with 1R.  Let us find out how the trade goes.

The price heads towards the South with extreme bearish pressure. Some H4 breakout traders may get 3R from this chart. Now the question may arise here is whether we should take an entry on the H4 chart as well? If we go by saying, “do not put all your eggs in the same basket’, we may not.

We actually should take the entry on the H4 chart as well after taking the first entry on the daily chart. First, we are not taking the second entry based on the daily chart. It is a different setup, although the strategy is the same. If we are confident and experienced in trading different charts, we are all right to take entry in the same pair. This usually brings us a bagful of pips.