Tag: Resistance

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Forex Price-Action Strategies

Forex Price Action: Do Not Be Over Confident

Engulfing candle is the strongest reversal candle. In a bearish market, the buyers wait for a bullish engulfing candle and flip over to the minor chart to take entry. It does not usually go wrong. However, from time to time, things may not go according to traders’ expectations, even with engulfing candle. In today’s lesson, we are going to demonstrate an example of that. Let us proceed.

Engulfing candle is the strongest reversal candle. In a bearish market, the buyers wait for a bullish engulfing candle and flip over to the minor chart to take entry. It does not usually go wrong. However, from time to time, things may not go according to traders’ expectations, even with engulfing candle. In today’s lesson, we are going to demonstrate an example of that. Let us proceed.

Engulfing candle is the strongest reversal candle. In a bearish market, the buyers wait for a bullish engulfing candle and flip over to the minor chart to take entry. It does not usually go wrong. However, from time to time, things may not go according to traders’ expectations, even with engulfing candle. In today’s lesson, we are going to demonstrate an example of that. Let us proceed.

This is a daily chart. The chart shows that the price makes a bearish move and finds its support. It produces a bullish engulfing candle. Thus, the H4 breakout traders may flip over to the H4 chart and wait for the price to consolidate and to create a bullish engulfing candle to go long in the pair. Let us flip over to the H4 chart.

The H4 chart also looks very bullish. The price starts having consolidation. Then, it produces a hammer. It seems the chart may not take too long to produce a bullish engulfing candle breaching consolidation resistance.

The chart produces another bullish candle closing within consolidation resistance. The price heads towards the South to search for its support. It has been taking longer than the buyers’ expectations. They must not be impatient but keep their eyes on the chart.

The price finds its support and produces a bullish engulfing candle. The candle closes well above consolidation resistance. The buyers may trigger a long entry right after the last candle closes by setting stop loss below the level of support and by setting take profit with 1R. The signal candle suggests that the buyers find a good deal here. Let us proceed to the next chart to find out what the price does.

I do not think that the buyers are ready for this. The last candle comes out as a bearish inside bar, but it closes within consolidation resistance and support. It does not hit stop loss yet. The buyers still have a chance to win this. This looks ominous for them, though.

The price hits stop loss now. The last candle comes out as a bearish candle closing below consolidation support this time. All of a sudden, it becomes the sellers’ territory. The H4 buyers must avoid this chart for a while.

The lesson we get from today’s example is a chart, which looks only for the buyers’ turns into opposite within two candles. Things get changed anytime in the Forex market. Thus, traders should not be overconfident with their analysis, strategy at any point in their trading life.

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Forex Daily Topic Forex Price-Action Strategies

Forex Price Action: A Losing Trade

Forex trading is considered one of the riskiest businesses. The market is volatile and it gets unpredictable from time to time. There is no trading strategy, which can guarantee one hundred per cent success. Thus, Forex traders must be mentally prepared to take losses. In today’s lesson, we are going to demonstrate an example of […]

Forex trading is considered one of the riskiest businesses. The market is volatile and it gets unpredictable from time to time. There is no trading strategy, which can guarantee one hundred per cent success. Thus, Forex traders must be mentally prepared to take losses. In today’s lesson, we are going to demonstrate an example of […]

Forex trading is considered one of the riskiest businesses. The market is volatile and it gets unpredictable from time to time. There is no trading strategy, which can guarantee one hundred per cent success. Thus, Forex traders must be mentally prepared to take losses. In today’s lesson, we are going to demonstrate an example of a losing trade.

The chart shows that the price upon finding its resistance heads towards the South with good bearish momentum. The first candle comes out as a bearish engulfing candle followed by two bearish candles. These suggest that the bear takes control. The sellers are to wait for the price to consolidate and a bearish engulfing candle to go short in the pair. Let us proceed to the next chart to find out what the price does.

The price finds its support. It produces a bullish inside bar followed by two doji candles. It seems that the price has been searching for its resistance. The sellers are to keep their eyes on this chart.

The price finds its resistance. It produces a bearish engulfing candle closing below consolidation resistance. Without any doubt, this is an A+ breakout candle. The sellers may trigger a short entry right after the candle closes by setting stop loss above consolidation resistance and by setting take profit with 1R. Let us find out how the trade goes.

It looks fantastic for the sellers. The next candle comes out as a bearish candle as well. Consecutive two bearish candles suggest that the bear is in a hurry to hit the take profit. The sellers may not have to wait too long to achieve their target as far as the price action in this chart is concerned.

Would you believe it? The next candle comes out as an inverted hammer. The upper shadow hits the stop loss. The sellers are out with their entry with a loss. That was beyond their imagination some might say. However, it happens a lot in the Forex market. Thus, traders must not be overconfident with any entry. Discipline and money management are to be maintained with every single trade.

Some traders, especially at the beginning can’t take losses easily. It bugs them up. Losing money may make them think something is wrong with their strategy. There is nothing wrong if traders want to try to develop new strategies. However, they should not just lose the belief and abandon a long proven strategy all of a sudden.

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Forex Price-Action Strategies

Price Action Trading: The Morning Star at a Breakout Level

Breakout is the first thing that attracts the price action traders to keep eying on a chart. Then, correction/consolidation followed by reversal candle breaching consolidation support/resistance is the signal to trigger an entry.

Breakout is the first thing that attracts the price action traders to keep eying on a chart. Then, correction/consolidation followed by reversal candle breaching consolidation support/resistance is the signal to trigger an entry.

Breakout is the first thing that attracts the price action traders to keep eying on a chart. Then, correction/consolidation followed by reversal candle breaching consolidation support/resistance is the signal to trigger an entry.

The breakout level plays an important role, which often becomes consolidation support/resistance and produces the reversal candle. Sometimes a breakout level produces even stronger reversal patterns such as Morning Star and Evening Star. When that happens, it attracts more traders and brings more liquidity. In today’s lesson, we are going to demonstrate an example where the breakout level holds the price as support; produces the Morning Star to offer a long entry. Let us get started.

The chart shows that the price heads towards the North with good bullish momentum. On its way, it makes a breakout at the highest high. The pair then produces a bearish reversal candle to consolidate around the breakout level. The buyers are to keep an eye on this chart. If the breakout level produces a bullish engulfing candle closing well above consolidation resistance, they may trigger a long entry.

The chart produces a Doji candle (tiny bullish body with long shadows both sides). The breakout level holds the price, for which the buyers are going to be very keen to keep an eye on this pair. If the next candle comes out as a bullish engulfing candle, it would also form a candlestick pattern called Morning Star.

The chart produces a bullish engulfing candle closing well above consolidation resistance. A bullish engulfing candle is enough to attract the buyers to go long in this chart. The combination of the last three candle forms Morning Star, which is a strong bullish reversal candlestick pattern. The buyers may trigger a long entry right after the last candle closes. Stop Loss is to be set below the breakout level and Take Profit is to be set with 1R. Let us proceed to the next chart to see how the trade goes.

The next candle comes out as a bullish candle. The buyers seem to have taken control. The price may hit the target soon.

It takes only two candles to hit the target. Traders make some green pips in a hurry. If we analyze this trade, we find

  1. The price makes a bullish breakout and comes back at the breakout level.
  2. The breakout level works as support and holds the price
  3. It produces a bullish engulfing candle closing above consolidation resistance.
  4. It produces a candlestick pattern called Morning Star as well.
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Forex Basic Strategies

Pairing The ‘Gravestone Doji’ Pattern With Significant Resistance Levels

Introduction

Introduction

Introduction

Gravestone Doji is a bearish reversal candlestick pattern that occurs at the top of an uptrend. This pattern helps the traders to visually see where the significant resistance level is located on the price chart. The most important aspect of the Gravestone Doji pattern is its long upper shadow. The candlestick’s open, close, and low are all the same in this pattern.

The psychology behind the long upper shadow is this – In an ongoing uptrend, when the price action hits the significant resistance line, buyers exit their positions, and the price action is smacked down by the sellers. In short, the appearance of this pattern represents the losing momentum of the buyers and essentially indicates a bearish reversal in the market.

Most of the traders place their trades as soon as this pattern appears on the price chart. But that’s definitely not the right approach. Instead, we must wait for the next candle to close for the confirmation and only then take the trades. The opposite of the Gravestone Doji is the Dragonfly Doji, which appears at the bottom of a downtrend or the major support area. The below image represents the Gravestone Doji Pattern.

Trading Strategies – Gravestone Doji Pattern   

The Gravestone Doji pattern indicates that the buying trend is ending, and the market is reversing to the selling side. However, this doesn’t hold true all the time. We will be finding this pattern quite often in all the types of market conditions, and if we start trading every time we find them, we will end up on the losing side. We always need to ask our self the reason why this pattern appears in certain conditions. Is it going to reverse the market or not?

Pairing the pattern with a significant resistance level

If you find this pattern at the bottom of the range, do not trade it. But if the price action prints this pattern at the top of a range, it can be considered a sign for us to go short. Similarly, find the trending markets and look for a major resistance level where the price could possibly react. So when the price action prints a Gravestone Doji at the major resistance level, it’s a strong sign for us to go short.

In the below USD/CHF Forex chart, we can see that the price action has printed the Gravestone Doji pattern at the significant resistance level. We should be going short as soon as the Doji candle closes.

In the below image, we can see that we took a sell entry when the market printed the Gravestone Doji pattern. We have placed the stop-loss just above the resistance level. It is safer to put the stop-loss above the pattern or at the resistance line because if the price goes above the pattern, the pattern gets invalidated. We know that the Gravestone pattern indicates a market reversal, and most of the time, these reversals travel quite far. That is the reason why we go for deeper Take Profits.

In the above chart, we can see that we had exited our full positions when strong buyers showed up. This indicates that the sellers are losing their momentum, and there is no logic to continue holding our positions.

Gravestone Doji + Stochastic Oscillator

The strategy that we shared above is for aggressive traders who like to take risks. However, if you are A type of trader who needs more confirmation to pull the trigger, we suggest you follow this strategy to trade this pattern. Most of the conservative traders do have a fear in their minds that one single candle does not have the potential to reverse the market. And it is completely okay to think like that. The truth is that sometimes even a single candle can move the market, and sometimes it doesn’t. Ultimately it is your money management system that makes all the difference.

But to filter out some poor signals and to get an additional confirmation, it is advisable to use the Stochastic oscillator to confirm the probability of our trading signal. Stochastic is a range-bound indicator that oscillates between the 0 & 100 levels. When the Stochastic goes above the 70 level, it means that the market is in an overbought condition, and we can expect a change in the trend. Likewise, when it goes below the 30 levels, it means that the market is oversold are we can expect a reversal anytime soon.

The Stochastic indicator also shows the bearish and bullish divergence, which helps the traders in trading the upcoming reversals. The divergence is when the market moves in one direction, but the indicator is signaling a different direction. Now we believe that you understand the basics of trading with the Stochastic indicator. Now let’s dive into the strategy.

The strategy here we are using is simple and straight forward. First of all, identify the Gravestone Doji pattern at a significant resistance level in an uptrend. Then, apply the Stochastic indicator to the price chart and check if the indicator is at the overbought area, indicating a downside reversal. If yes, go short and place the Stop-Loss just above the pattern.

The GBP/CAD chart below indicates the appearance of the Gravestone Doji pattern in an uptrend. When the price is approaching the upper resistance level, it got smacked down immediately, and the market ended up printing the pattern. The next six candles tried very hard to break the pattern & resistance line, but nothing worked, and the price ended up rolling down. We can also observe the Stochastic indicator was at the overbought area, which is a confirmation sign for us to go short.

We have entered for a sell when both the conditions are met, and placed the Stop-Loss just above the pattern. For the Take-Profit, we choose to go for deeper targets. When the selling trend started to struggle, the Stochastic indicator was at the oversold selling conditions. At that point, we have closed our full positions for obvious reasons.

Conclusion

The trades taken based on the Gravestone Doji pattern are pretty reliable. But do not make the mistake of identifying the pattern everywhere on the price chart. The psychology behind this pattern says that the bulls drove the price to a peak point, and the sellers are comfortable in reversing the market. For booking profits, you can expect an equal move to that of a previous trend. If you are an intraday trader, make sure to exit your positions at any significant level. Although this pattern appears on all the timeframes, the reliability is higher on higher timeframes to that of lower timeframes.

We hope you find this article informative. Try trading this pattern on a demo account and master it before applying the above-mentioned strategies on the live market. Cheers.

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Forex Course

99. Pivot Points: What have we learned so far?

Introduction

Introduction

Introduction

In the previous six lessons, we discussed pivot points right from understanding what they are, to the strategies one can apply to trade the markets. Now, let’s summarize what we’ve learned so far and move on with another exciting tool for analyzing the markets.

Pivot Point Basics

A pivot point is a technical indicator in technical analysis trading, which determines potential support and resistance levels in the market. This indicator is stationary, unlike the other indicators that move with the change in price.

The pivot points are levels that are essentially determined using the previous day’s high, low, and close price. So, every trading day, we can obtain one set of the pivot point.

What is the pivot point made up of?

There are up to six levels that make up the pivot point levels. One of the levels is the pivot point level, and the rest are support and resistance levels. The six pivot levels are symbolized as follows:

Pivot Point (PP/P)

First Support (S1), First Resistance (R1)

Second Support (S2), Second Resistance (R2)

Third Support (S3), Third Resistance (R3)

Fourth Support (S4), Fourth Resistance (R4)

Fifth Support (S5), Fifth Resistance (R5)

Note that, most of the time, we stick to the levels until S3/R3 because the price does not usually touch the levels beyond it.

How are the pivot levels calculated?

As mentioned, the pivot points are calculated using the close, high, and low of the prior trading day.

For example, the Pivot Point, First Support, and First Resistance are calculated as follows:

PP = (High + Low + Close) / 3

S1 = (2 x PP) – High

R1 = (2 x PP) – Low

Similarly, one can calculate levels until R5/S5. However, these values need not be calculated practically. There are trading platforms that automatically calculate these values.

Types of Pivot Points

There are four types of pivot points based on how the levels are calculated.

  1. Standard
  2. Woodie
  3. Camarilla
  4. Fibonacci

Most of the time, the standard pivot point levels are used.

Strategies using Pivot Points

There are several ways through which one applies pivot points. In our course, we have listed out three strategies.

Range trading strategy

According to this strategy, one can consider buying when the support level of the pivot points coincides with the support level of the range. A similar strategy can be applied for shorting as well.

Breakout Trading Strategy

As the name pretty much suggests, traders can consider going long or short when the price breaks above the resistance or below the support level.

Measuring Sentiment

Traders can use the pivot point level (PP) to determine the trend of the market. If the market breaks above the PP, it indicates a buyer’s market and vice versa.

Summing it up

The pivot point is that indicators that can be used every level of traders from beginners, intermediate to the advance trades. However, this indicator is not a standalone indicator. It must always be used in conjunction with other indicators and tools to have higher odds of favoring you. We hope you enjoyed this series on pivot points. Happy trading!

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Forex Price-Action Strategies

When Price Finds New Support/Resistance

Price action traders are to be calculative and watchful. Breakout and breakout confirmation are two things that price action traders keep eyes on. Trend initiating candle is another important factor. We often see that the price upon finding its support/resistance does not make a breakout straightway. It sometimes makes a little correction and then starts trending to make a breakout. This new level of support/resistance plays a significant role in price action breakout trading. In today’s lesson, we are going to demonstrate an example of this.

Price action traders are to be calculative and watchful. Breakout and breakout confirmation are two things that price action traders keep eyes on. Trend initiating candle is another important factor. We often see that the price upon finding its support/resistance does not make a breakout straightway. It sometimes makes a little correction and then starts trending to make a breakout. This new level of support/resistance plays a significant role in price action breakout trading. In today’s lesson, we are going to demonstrate an example of this.

Price action traders are to be calculative and watchful. Breakout and breakout confirmation are two things that price action traders keep eyes on. Trend initiating candle is another important factor. We often see that the price upon finding its support/resistance does not make a breakout straightway. It sometimes makes a little correction and then starts trending to make a breakout. This new level of support/resistance plays a significant role in price action breakout trading. In today’s lesson, we are going to demonstrate an example of this.

The chart shows that the price after being bearish makes a bullish correction. It produces a bearish engulfing candle and drives the price towards the downside. However, look at the last candle. It comes out as a bullish engulfing candle. This means the price is to find its resistance again.

It does not take long to find its resistance. The next candle comes out as a bearish engulfing candle. The sellers are to keep their eyes on the pair to get a breakout. It seems that the price may head towards the South and make a breakout this time upon finding its new resistance.

The chart makes the breakout by the next candle. The sellers are to wait for the next candle to close below the breakout candle to trigger a short entry. Do not forget that it makes the breakout upon finding a new resistance.

The next candle comes out as a bearish candle having a long lower shadow. Thus, they should flip over to the 15 M chart to see how the last 15 M candle comes out. Despite having a long lower shadow, the last 15M candle comes out as a bearish candle too. The sellers may trigger a short entry right after the last candle closes. Stop Loss is to be set above the last resistance and Take Profit is to be set with 1R. This is why the new level of support/resistance plays a significant role.

The price heads towards the South but not with strong bearish momentum. It hits 1R though. The distance between new resistance to entry point= Entry point to Take Profit= 1R.

Whenever the price finds its new resistance/breakout, breakout traders must count those to set their stop loss and take profit level. Breakout trading needs the price to make a breakout with good momentum. If it takes any pauses before making a breakout, ignore the last support/resistance. It gives us better risk-reward as well as more chance of winning a trade.

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Forex Course

95. Adding Pivot Points to Your Range Strategy

Introduction

Introduction

Introduction

In the previous two lessons, we completely understood the basics of pivot points as well as how to calculate and interpret them. And now, we can move on and start applying this indicator to our charts and find trading opportunities using it.

In this lesson, we shall use the pivots points in our range trading strategy. We will be giving you a complete guide on the trading range with the assistance of pivot points.

Incorporating Pivot Points into Ranges

The Basics

As we already learned, pivot point has S1, R1, S2, R2, etc. which represents Support and Resistance whose working principles are the same as the typical Support and Resistance. According to the definition, support is the area in which the market tends to hold and move up, and resistance is the area where the market holds and typically moves downwards.

Talking about a range, it is the state of the market which moves in a sideways direction and repeatedly bounces off from support and resistance level. So, we shall be testing the pivot points as the place where the market can hold and possibly reverse.

The Thumb Rule

When the market is at any of the upper Resistance levels, we look to go Short on the security. When the price is at any of the lower Support levels, we look to go Long on the security.

Live Chart Example

Below is the chart of GBP/CAD on 15min timeframe. We can see that currently, the market is in a range (as shown in the box). The market was ranging on the 16th of March. With these values of 16th March, we calculate the pivot points for the next day and find trading opportunities.

Now consider the same chart after we’ve determined the P, S1, R1, S2, R2 pivot levels. Following up range, we can see that the S1 level was formed exactly at the bottom of the range. Now, both S1 and the bottom of the range is indicating a Buy a signal. Hence, when the price touches the S1 level, we can go long on this pair.

From the chart, we can clearly see that we found two opportunities to hit the buy at the first Support level S1.

Placements

Having a predetermined take profit and stop loss is vital in trading. In this particular example, the take profit can be placed at the pivot point (P) and stop loss below the S1 such that the trade yields 1:1 Risk Reward. Note that there are times when the take profit can be placed at the R1 level as well. But this requires expertise in technical analysis as well as in pivot points.

The above example is the way for traders to get the hang of how to trade pivot points. To do it more professionally, one must use other technical analysis tools to have a confirmation on the pivot levels. For instance, if there appears a Doji candle at the S1 level and also the stochastic indicator is indicating that the market is in the oversold area, then there are more odds in our favor that the support will work in the direction we predicted.

So, to sum it up, one must use the pivot point levels by clubbing it with other technical tools to find optimum results. We hope you comprehended this lesson to the best of your ability. Cheers!

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Forex Course

94. Calculating and Comprehending Pivot Points

Introduction

Introduction

Introduction

In the previous lesson, we understood what pivot points are. However, it is also necessary to understand how these levels are calculated. So, in this lesson, let’s go ahead and figure out how these levels are marked and comprehended.

Before getting right into it, let’s brush up the previous topic real quick.

  • The pivot point is an indicator used to identify Support and Resistance levels.
  • It is a static indicator, unlike the other indicators that move with the price.
  • It helps in determining the overall trend of the market in any given timeframe.
  • It is calculated using high, low, and close values.

Below is an image of how pivot points look when applied on the charts. As already mentioned, S stands for Support, R stands for Resistance, and P(PP) stands for Pivot Point. Now we shall see what exactly is S1, R1, S2, R2, etc.

Calculating Pivot Points

Different levels of Support and Resistance are shown when calculating the Pivot point’s support and resistance levels, and they are represented as S1, R1, S2, R2, etc. Now, let’s calculate each one of them. The Pivot Point P(PP) value is given by the average of the high price, low price, and the close price.

Pivot point P(PP) = (High + Low + Close) / 3

First level Support and Resistance Formula:

First Resistance (R1) = (2 x P) – Low | First Support (S1) = (2 x P) – High

Second level Support and Resistance Formula

Second Resistance (R2) = P + (High – Low) | Second Support (S2) = P – (High – Low)

Third Level Support and Resistance Formula

Third Resistance (R3) = High + 2(P – Low) | Third Support (S3) = Low – 2(High – P)

In the above formulas:

High represents the high price from the previous trading day,

Low represents the low price from the previous trading day, and

Close represents the closing price from the previous trading day.

Note: Since the forex market is open 24 hours, the New York closing time, i.e., 5:00 pm EST, is taken as the previous day data. For example, if you want to calculate the levels for Wednesday, you must consider the values of Tuesday.

Comprehending Pivot Points

In this indicator, we came across three levels, namely, Pivot point level, Support level, and the Resistance level. Let’s now understand what they actually depict.

The pivot point is a level drawn at the price of the average of the High, Low, and the close price of the prior trading day. So, if the market falls below the pivot point level on the subsequent trading day, we say that the market is showing bearish sentiment. And if the price goes above the pivot point, we say that the indicator is indicating bullish sentiment.

When it comes to the Support and Resistance levels, their meaning is the same as that of the actual Support and Resistance that is defined in the industry. The Support level is the price at which the market tends to shoot up, and Resistance is the level where the market tends to fall.

This brings us to the end of this lesson. In the coming lessons, we will understand how to trade the markets applying the Pivot Points indicator.

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Categories
Forex Price-Action Strategies

If Price finds New Level of Support/Resistance

To measure risk-reward, price action traders must identify the level of support/resistance accordingly. It gets tricky sometimes. In today’s lesson, we are going to demonstrate an example of that.

To measure risk-reward, price action traders must identify the level of support/resistance accordingly. It gets tricky sometimes. In today’s lesson, we are going to demonstrate an example of that.

To measure risk-reward, price action traders must identify the level of support/resistance accordingly. It gets tricky sometimes. In today’s lesson, we are going to demonstrate an example of that.

This is an H1 chart. The chart shows that the price has a bounce at a level. Upon producing a bullish engulfing candle, it heads towards the North. It finds its resistance and produces a bearish engulfing candle followed by another bearish one. If it makes a breakout and confirms the breakout, the sellers may trigger short entry by setting stop-loss above the level of resistance and take profit with 1R.

The price does not make a breakout, but it heads towards the North. The sellers must wait to find out what happens next. It may go back to the level of resistance, have a rejection at double top, and make a breakout.

It may even make a breakout from here. Let us find out from the next chart what happens.

The price finds its resistance at a new level. It produces a bearish engulfing candle again. If it makes a breakout at the level of support and confirms it, it would be a short signal.

The chart produces a bearish candle, which breaches the level of support. If the next candle closes below the last candle, the sellers may trigger a short entry.

The next candle confirms the breakout. The sellers may trigger a short entry right after the candle closes. Question is where do they set their stop loss and take profit? Do they use the new level of resistance to set stop loss and take profit or use the old one? We find out the answer in a minute.

The price heads towards the South with good bearish momentum. Trade setup works as well as it usually does in breakout trading strategy. The price keeps making lower lows, and it seems it may go further down. However, since the price makes an upward correction before making the breakout, we may consider the second level to set our stop loss. We may set our take profit with 1R by measuring the same number of pips from the entry point to stop loss as well. This provides fewer pips as a reward, but to be safe with an entry like this, we may do this. The price often makes a consolidation, or it makes a correction (once it hits 1 R from the new resistance/support) after such breakout. A correction/consolidation sometimes leads towards a trend reversal as well. Thus, there is no point in taking a loss for hunting some extra pips. Always remember ‘safety first.’

Categories
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.

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.

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 Basics

Some Spikes are Not to Be Ignored

Forex traders often struggle with spikes on their trading charts. The Line chart does not show spikes, but Candlestick Chart does. Price action traders usually use candlestick charts as one of their weapons to trade effectively. Thus, they face this problem every now and then. There is no sure method confirming which spikes are to be ignored, and which are not to be ignored. We have to be sensible about that. In today’s lesson, we find out a kind of spikes that are not to be ignored. Let us get started.

Forex traders often struggle with spikes on their trading charts. The Line chart does not show spikes, but Candlestick Chart does. Price action traders usually use candlestick charts as one of their weapons to trade effectively. Thus, they face this problem every now and then. There is no sure method confirming which spikes are to be ignored, and which are not to be ignored. We have to be sensible about that. In today’s lesson, we find out a kind of spikes that are not to be ignored. Let us get started.

Forex traders often struggle with spikes on their trading charts. The Line chart does not show spikes, but Candlestick Chart does. Price action traders usually use candlestick charts as one of their weapons to trade effectively. Thus, they face this problem every now and then. There is no sure method confirming which spikes are to be ignored, and which are not to be ignored. We have to be sensible about that. In today’s lesson, we find out a kind of spikes that are not to be ignored. Let us get started.

The price heads towards the South with good bearish momentum. It finds its support and produces a bullish reversal candle. The last candle comes out as a bullish candle as well. The sellers are to wait for a bearish reversal candle to go short in this chart.

Here comes the bearish reversal candle that the sellers wait in such price action. We have not drawn any resistance line. If we closely observe, we find that the last two candles’ bodies suggest a line of resistance. Candles’ bodies play a significant role in determining the support/resistance line. Let us draw a line of resistance here.

Here it is. The combination of the last two candles and their bodies suggests that we may draw a line right above their bodies. In most cases, we are to do this. However, the last two spikes have something more to think about. If we closely look, we find that the last two spikes are lined up. They have had their rejection at the same level. This means that the line is significant, which must not be ignored. Thus, if we want to take entry here, we may count the line above as the level of resistance. Let us have a look at the chart below with more drawn lines.

Look at the Stop Loss level. To be safe, we may not ignore such levels, where the price gets rejected multiple times. The candles may end up having spikes, but these spikes shall be counted to determine our stop loss, take profit, and breakout level. Let us not proceed to find out how the entry goes.

The trade setup works well for the traders. The price heads towards the South with more bearish pressure. It gets 1R to the sellers in a hurry. Now many of us may say the price never goes back to the level. In 80% of cases, the price does not go back near to the resistance. In the rest of the 20% cases, it may go. That is when we are to take an unnecessary loss. As they say, it is better to be safe than sorry. Let us be safe with spikes like these.

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Forex Basic Strategies Forex Daily Topic

An Old Theory about Support/Resistance

In price action trading, traders rely on support/resistance a lot. Beginners often ask a question of whether they are predetermined. In answer to this, they are predetermined to some extent. A trader can guess level/levels that may work as support/resistance. The idea is simple. Support becomes resistance, and resistance becomes support. In today’s lesson, we are going to demonstrate an example of this.

In price action trading, traders rely on support/resistance a lot. Beginners often ask a question of whether they are predetermined. In answer to this, they are predetermined to some extent. A trader can guess level/levels that may work as support/resistance. The idea is simple. Support becomes resistance, and resistance becomes support. In today’s lesson, we are going to demonstrate an example of this.

In price action trading, traders rely on support/resistance a lot. Beginners often ask a question of whether they are predetermined. In answer to this, they are predetermined to some extent. A trader can guess level/levels that may work as support/resistance. The idea is simple. Support becomes resistance, and resistance becomes support. In today’s lesson, we are going to demonstrate an example of this.

The price has a bounce at the drawn level and heads towards the North. The last candle comes out as a bearish engulfing candle. The price may head towards the South. If that happens, the sellers are to wait for a breakout at the drawn level. Let us proceed to find out what happens next.

The next candle comes out as a bearish candle as well. However, it does not make a breakout. This is an interesting chart for both the buyers and the sellers. The buyers may wait to get a bullish reversal. Since this is the level where the price has bounce earlier, this may become double bottom support. On the contrary, if the price makes a bearish breakout at the drawn level, the sellers dominate in the pair.

The bear wins. The last candle closes well below the drawn level. This is an explicit breakout. The sellers are to wait for the breakout confirmation. If the chart produces another bearish candle closing below the last candle, the price may find its next resistance at another significant level. In most cases, the price usually goes back and finds its resistance at the breakout level, which was the level of support earlier.

Look at the chart. The price goes back to the breakout level and creates a doji candle. Do you notice the doji candle is produced right at the drawn level? This means the level may drive the price towards the South by being the level of resistance.

The level produces a bearish engulfing candle closing below consolidation support (This may become resistance later as well). The last candle suggests that the price may head towards the South with good bearish momentum. The sellers have found the new resistance.

As expected, the price heads towards the South for one more candle. It usually happens when support/resistance produces an engulfing candle as a reversal candle. In the end, a level of support flips and becomes a level of resistance. If we closely observe, we find this is what happens almost every time. Support becomes resistance, and vice versa. By obeying the theory, experienced traders spot out the levels of support/resistance well ahead.

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Forex Daily Topic Forex Price-Action Strategies

Price Action Trading: An Important Thing to be Remembered

To draw Support/Resistance, price action traders are to be sensible. They often need to be adjusted. In today’s lesson, we are going to demonstrate an example of this. To spot out support/resistance, traders are to aim the zones. Then, in the end, they are to draw levels to have the confirmation of a breakout. Let us learn more about this from the examples below.

To draw Support/Resistance, price action traders are to be sensible. They often need to be adjusted. In today’s lesson, we are going to demonstrate an example of this. To spot out support/resistance, traders are to aim the zones. Then, in the end, they are to draw levels to have the confirmation of a breakout. Let us learn more about this from the examples below.

To draw Support/Resistance, price action traders are to be sensible. They often need to be adjusted. In today’s lesson, we are going to demonstrate an example of this. To spot out support/resistance, traders are to aim the zones. Then, in the end, they are to draw levels to have the confirmation of a breakout. Let us learn more about this from the examples below.

This is an H1 chart. The chart shows that the price has been choppy for quite a while. It has been roaming within a descending triangle. The price may make a breakout to either side. Let us work with horizontal support and spot out point/points where the price bounces twice.

We may spot out two points here. These two levels are nearby to each other. Without any doubt, this is a strong support zone. If we consider levels, we may get confused since we get two levels. In such a situation, we may closely observe what the price does around the last swing low. Let us proceed to the next chart.

The chart shows that the last candle breaches the level of support (the last swing low). This is not an explicit breakout. We must wait for the next candle to have the breakout confirmation.

The next candle comes out as a bearish candle as well as closing well below the breakout candle. If we consider the price action for the last two candles, it is clear that the sellers have taken the control. The level of support at the last swing low holds the key as far as the last two candles’ price action is concerned. The H1 breakout strategy sellers may trigger a short entry right after the candle closes. Let us proceed to the next chart what the price does after triggering the entry.

The price heads towards the South with good bearish momentum. The sellers achieve their 1R with ease. The last candle’s attributes suggest that the price may go towards the South further. In a word, this has been a prolific trade setup for the sellers.

If we consider the first swing low on this chart, we may get confused about the breakout. Considering the price action and the last swing low, it is a basic thing to understand that the price makes a breakout at the last swing low. The last swing low matters most as far as the breakout strategy is concerned. If the price consolidates after a breakout, then other levels (previous levels of support/resistance) may work as flipped support or resistance. This is one important thing to be remembered by the price action traders.

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Forex Course

75. Using Moving Average Crossovers To Take Trades

Introduction

Introduction

Introduction

In the previous article, we learned how to use the moving average for determining the direction trend. The Moving Average lines not only helps us in identifying the direction of the market but also tells us when a trend is about to end and potentially reverse. In today’s lesson, we will see how the moving averages can be used to enter trades at the reversal of a trend.

The principle of the strategy is to discover the crossover of the two moving averages on the chart. When the moving averages crossover, it is a sign of market reversal halting the existing trend. So at this point, we need to find a suitable ‘entry.’

Moving Average Crossover Strategy

Let us consider an example to explain the above-discussed strategy. Below, we have a daily chart of USD/CHF on which we have plotted the two moving averages (10-Period & 20-period). We can see the market being in a strong downtrend, and it is also confirmed by the two moving averages, where the ‘faster’ MA is below the ‘slower’ MA.

The next step is to find the overlap of ‘faster’ MA with the ‘slower’ MA from above, which is also known as the crossover of MAs. Once the crossover happens, there is a higher chance of the trend reversing. The below chart shows precisely how the crossover takes place, which means the trend can potentially reverse anytime now.

But, we shouldn’t be directly going long soon after the crossover. We need to confirm the trend reversal. A ‘higher low’ after the crossover validates the trend reversal, and this could be the perfect setup for going ‘long’ in this currency pair.

The below chart shows the ‘higher low,’ which is formed exactly after the crossover. Therefore, we now have confirmation from the market, so we can take some risk-free positions.

As we can see, in the below chart, the trade goes in our favor and hits our initial target. However, aggressive traders can aim for a higher ‘take-profit‘ as the new uptrend can reverse the entire downtrend, which is seen on the left-hand side. The reversal is also confirmed by moving averages where the ‘faster’ MA is above the ‘slower’ MA. The stop-loss for this trade is placed below the identified ‘higher low’ with a take-profit at a new high or significant S&R area.

Conclusion

The crossover strategy works beautifully in both volatile and trending markets, but they do not work that well in ranging markets. This is because the crossover takes place multiple times in the ranging market, and this leads to confusion about the market direction. To find high probability trades, one can also combine the strategy with other technical indicators to get additional confirmation of the trend reversal. In the next article, we shall see how moving averages can act as key support and resistance levels.

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Forex Basic Strategies Forex Daily Topic Forex Price Action

Support, Resistance and Trade Management

-Support and Resistance are the two most important concepts in the financial market. Forex traders strongly rely on support and resistance, as well. Price action traders’ main weapon is support and resistance. In today’s article, we are going to demonstrate an example of how the price reacts to a major level of support and resistance. Let us get started.

-Support and Resistance are the two most important concepts in the financial market. Forex traders strongly rely on support and resistance, as well. Price action traders’ main weapon is support and resistance. In today’s article, we are going to demonstrate an example of how the price reacts to a major level of support and resistance. Let us get started.

-Support and Resistance are the two most important concepts in the financial market. Forex traders strongly rely on support and resistance, as well. Price action traders’ main weapon is support and resistance. In today’s article, we are going to demonstrate an example of how the price reacts to a major level of support and resistance. Let us get started.

Look at the chart. The price consolidates around the red-marked level, it finds its resistance there and makes a bearish move. After having a correction, it makes the new lowest low. This is now the sellers’ territory. Let us assume that there is no significant level, which may hold the price as support. Thus, we are not able to mark any level as support. The sellers are to wait for the price to consolidate and produce a bearish reversal candle to offer them short entry in this chart.

The price makes new lowest lows and heads towards the South with good bearish momentum. However, it seems that it may have found its support. It consolidates for a while around the red-marked level and produces a bullish engulfing candle. The buyers on the minor chart may get them engaged to keep an eye on the chart to go long above the highest high of the last candle. Let us find out what happens next.

The price heads towards the North. It consolidates and produces another bullish engulfing candle. It means the chart is now the buyers’ territory. This is where the game of support and resistance begins. You may have noticed that we have red-marked the level. This is the most significant level in this chart for the buyers. The price may consolidate and find its resistance in this chart before it reaches the red-marked level. However, this is where traders may make a decision concerning their long position. They may either close their whole trade or take partial profit.

The price keeps heading towards the North. It buyers are having a party here. They must not forget the red-marked level, though. Let us proceed to the next chart.

Look at the chart carefully. Do you notice that the price consolidates around the red-marked level, which is the swing high in this chart? It produces a bearish engulfing candle followed by another bearish one. The last candle on this chart comes out as a bullish inside bar. If the next candle comes out as a bearish engulfing candle, the sellers may drive the price towards the South. I am sure now you know where the sellers are to be careful with their trade management. Yes, they must take the red-marked support (swing low in this chart) into account to manage their short entries.

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Forex Course

63. Reasons Why We Should Never Completely Depend On Fib levels?

Introduction

Introduction

Introduction

In the previous article, we learnt how exactly to trade using the Fibonacci levels. There are many other ways through which Fib levels can be traded. Some of them include trading these levels using S&R, Trendlines, and even candlestick patterns. Before learning all of these ways, we must know that these levels are not guaranteed and cannot be traded stand-alone. So in this article, let’s discuss why one should be very careful while trading Fibonacci retracements.

Fibonacci Levels Will Not Be Respected Always

Every technical level ultimately breaks at a certain point in time, and that is the case with Fibonacci levels as well. In the previous article, we had learnt that Fibonacci levels also act as potential support and resistance areas. So these levels do break just as how S&R levels break. Therefore we must keep in mind that these levels are not foolproof.

Let’s understand this with the help of an example. But before that, make sure to read our article on ‘How to trade Fib retracements’ to understand this better. You can find that lesson here.

In the price chart below, we can see an initial big move to the downside. So basically, here we must wait for the retracement, and that retracement must touch the Fibo levels. Let’s see what happens in the next step.

We saw the retracement (below chart) of the downward move, and we have placed the Fib levels from swing high to swing low since it is a downtrend.

Then we can see the retracement reaching the 50% Fib level and holding there. Ideally, at this point, the retracement must stop, and the market’s original downtrend should continue. Also, we should be placing our ‘sell’ trades as the Red confirmation candle can clearly be seen.

But, to our surprise, we observe that the price did not respect our strategy, and the market shot up to the north, violating all the Fibonacci levels, as shown in the below chart.

While Fibonacci retracement levels give us a high probability of the trade working in our favor, like any other technical analysis tool, they don’t always work. One can never be entirely certain that the price will respect the 50% or 38.2% or any Fibonacci level for that matter.

If you are an experienced technical trader, you wouldn’t have placed a sell trade in the above scenario. It was clear that the sellers are losing momentum. The formation of a bearish Doji candle at the bottom (below chart) is another confirmation of a trend reversal.

So we should be looking at the bigger picture, or we should take the help of any other technical tools to confirm the signals generated by the Fibonacci levels. Never completely depend on them.

Conclusion

Apart from the things that we discussed above, there is another issue while using these Fib ratios, which is determining the appropriate swing low and swing high. Everyone looks at charts differently. They trade at different time frames and have their own fundamental reason for buying or selling the currency pair.

Swing high for one trader might likely be different than swing high for another. And when the Fib ratios are placed incorrectly, of course, the trading signals generated won’t be accurate. Also, the prerequisite for Fibonacci trading is trending markets. When the market is in a consolidation or moving sideways, it is obviously not possible to trade with these ratios.

We hope you understood this lesson well. If you find this complicated or if you have any questions, please let us know in the comments below. Cheers.

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Forex Daily Topic Forex Price-Action Strategies

Never Forget to Calculate Risk-Reward

Risk-Reward is an extremely important factor in Forex trading. The price often makes a reversal at a significant level of swing high/swing low. Thus, price action traders must emphasize those levels before taking any entry. By calculating risk-reward, they should only take entry once a trade setup is found lucrative as far as the risk-reward ratio is concerned. In today’s article, we are going to demonstrate an example of a trade setup, which looks good with candlestick patterns and price action. However, things do not go as it usually goes. We try to find out the reason behind it.

Risk-Reward is an extremely important factor in Forex trading. The price often makes a reversal at a significant level of swing high/swing low. Thus, price action traders must emphasize those levels before taking any entry. By calculating risk-reward, they should only take entry once a trade setup is found lucrative as far as the risk-reward ratio is concerned. In today’s article, we are going to demonstrate an example of a trade setup, which looks good with candlestick patterns and price action. However, things do not go as it usually goes. We try to find out the reason behind it.

Risk-Reward is an extremely important factor in Forex trading. The price often makes a reversal at a significant level of swing high/swing low. Thus, price action traders must emphasize those levels before taking any entry. By calculating risk-reward, they should only take entry once a trade setup is found lucrative as far as the risk-reward ratio is concerned. In today’s article, we are going to demonstrate an example of a trade setup, which looks good with candlestick patterns and price action. However, things do not go as it usually goes. We try to find out the reason behind it.

After being bearish for quite a while, the chart heads towards the North by producing a bullish inside bar. The chart presents a strong bullish candle followed by a corrective candle. This is what price action traders wait for. Ideally, they are to wait for a bullish engulfing candle closing above the consolidation resistance to go long on the pair. Do not miss the drawn level, which is the last significant swing high.

Here it comes. The chart produces a bullish engulfing candle closing well above the consolidation resistance. Some traders may think that they shall trigger a long entry right after the last candle closes. We must not forget that it is not only about candlestick and breakout. There is another factor, which is risk-reward. The reward does not look good comparing to the risk.

The next candle does not disappoint the buyers (if there are some). However, it gives a strong message that the level of resistance has gone stronger. The price may make a reversal. Let us find out what the price does next.

The next candle comes out as a bearish engulfing candle. This is one of the strongest bearish reversal candles. Since a significant level of resistance produces the candle, the sellers are getting ready to go short on the pair upon a bearish breakout. Those who took a long entry earlier, their trade is in great danger.

The next candle comes out as a bearish candle having a strong bounce at the level of last support. It must have swept away buyers’ stop loss. The last candle does not make a bearish breakout and has a long lower shadow, which is not a good sign for the sellers as well.  However, the buyers have not been able to take advantage of such nice bullish price action. The Forex market could take any direction since there are technical as well as fundamental aspects. Nevertheless, if we are to find one valid reason for the bearish reversal, it most probably is risk-reward.

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Forex Course

59. Trading The Candlestick Charts Using Support and Resistance Levels

Introduction

Introduction

Introduction

In the previous few lessons, we have discussed many candlestick patterns and how to trade them. Those basics are very important for us to master Technical Analysis. Before leaving the Candlestick topics, let’s discuss THE most important concept in technical trading i.e., Support & Resistance. We shall first understand what Support and Resistance are, and will learn how to trade them on the Candlestick charts.

What Is Support?

Support is the level at which the price finds it difficult to fall below. Eventually, the price will bounce back up at this particular level. The support level acts as a floor that restricts price action to go down further. Some technical traders describe ‘Support’ as an area where demand overcomes supply. Because at this level, the demand for any currency will be more, hence the selling stops, and buying continues. The price reaction of any given asset would look something like the image below at the Support level. We can clearly see the price bouncing back up once it reaches the support level. (Blue Line = Support Level)

What Is Resistance?

Resistance is just the opposite of the support level. It is the level where price finds it difficult to break through to rise above until it is pushed back down. It acts as a ceiling restricting the price action to go up further. Basically, it is an area where supply overcomes demand. The price reaction of any underlying currency at a resistance looks something like the image below. We can see the price reaching the resistance line many times but unable to break through it. We must remember that at any point, Support can turn into Resistance and Resistance can turn into support. Hene, it is called S&R.

Pairing candlesticks with S&R

The fundamental method of technical trading is to buy at Support and Sell at Resistance. But this does not always work as there is no sure shot assurance that the Support and Resistance levels will hold for long. Hence traders need to look at other important factors while trading at Support and Resistance.

When buying near Support, we must wait for the consolidation at that area and only buy when the price breaks above that small consolidation. In that way, we can be sure that the price is respecting that level and is starting to move higher. The same concept applies when selling at resistance. Wait for consolidation and then enter a short trade when the price drops below the low of the small consolidation.

Below is an example of a short trade.

After entering the trade, make sure to place the stop-loss just below the low and above the high of Support & Resistance, respectively.

According to technical analysis principles, if a Support level or Resistance level is broken, their role is reversed, i.e., Support becomes Resistance and Resistance becomes Support. The psychology behind this phenomenon is that, when price breaches a key area, some will get out, and some hold on to their trades to see what happens. When price retraces back to the key area, people who have held it, go out and making the price bounce at the previous Support and Resistance.

Conclusion 

Traders always suspect a reversal at the key Support and Resistance as there is a high probability that price will reverse at these key levels. Some traders who had open positions exit at these price levels and others initiate new positions at these levels, depending on which side the price are they. Support and resistance levels are psychological levels at which many traders place orders to buy (support) or sell (resistance) making them supply or demand levels. That is why it is crucial to learn about Support and Resistance.  Also, support and resistance levels can be identified more easily using candlesticks, as a candle is very graphical, displaying wicks when the price bounces back from bottoms or tops. Identifying these significant levels forms the basis for Technical Analysis. Cheers!

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Forex Price-Action Strategies

A Different Kind of Breakout Does Its Job Well

In today’s lesson, we are going to demonstrate an H1 breakout trade setup. Usually, the breakout candle makes a breakout by breaching through a level of support/resistance. Today, we are going to study about a breakout that takes place right at the level of resistance, which becomes support after the breakout. We need to be […]

In today’s lesson, we are going to demonstrate an H1 breakout trade setup. Usually, the breakout candle makes a breakout by breaching through a level of support/resistance. Today, we are going to study about a breakout that takes place right at the level of resistance, which becomes support after the breakout. We need to be […]

In today’s lesson, we are going to demonstrate an H1 breakout trade setup. Usually, the breakout candle makes a breakout by breaching through a level of support/resistance. Today, we are going to study about a breakout that takes place right at the level of resistance, which becomes support after the breakout. We need to be familiar with such a breakout since it happens quite a lot.

The price produces a bullish engulfing candle. The buyers wait for such a good-looking bullish reversal candle. They shall wait for the price to go towards the level of resistance and makes a breakout later. Let us proceed to the next chart.

The price heads towards the North but not right after the reversal candle. However, the bullish momentum looks good. Look at the last candle. It closes right at the level of resistance. It seems the price may make a breakout here soon.

The next candle closes well above the level of resistance. However, the candle is formed right at the level of resistance. Typically, a bullish breakout candle’s 25% of its lower body shall remain below the level of resistance. In this case, candle’s 100% (almost, ignore that very tiny lower body) body is above the level of flipped support. Such a breakout takes place in the Forex market very frequently.

The next candle closes well above the breakout candle. This means the breakout is confirmed. The buyers may trigger a long entry right after the last candle closes.

After triggering the entry, the price heads towards the upside with good bullish momentum. The chart produces two consecutive bullish candles after breakout confirmation. The buyers shall wait for the price to hit the target. For that, the price still has some space to travel towards the North.

The price hits the target and comes back down a little. It goes towards the level again. In this trade setup, the breakout candle’s breakout is not a good one that price action traders look for. In many cases, we may see that the chart does not confirm a breakout but goes another way around. It happens because such a breakout consumes some extra space. Thus, the majority of such breakouts are not confirmed and may not end up offering entry. However, once the breakout is confirmed, and there is enough space for the price to travel, most likely trade setup would work in traders’ favor. In the beginning, we may get puzzled with such a breakout. The fact is if the next candle after a breakout closes above (bullish market) the breakout candle, it is a valid breakout and works as well as the typical breakout candle does.

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Forex Basic Strategies Forex Trading Strategies

How To Trade The Engulfing Candlestick Pattern Using Support/Resistance

Introduction

Introduction

Introduction

Engulfing is one of those candlestick patterns in the forex market that provides a useful way for traders to anticipate a possible reversal in the trend. There are two types of engulfing patterns – Bullish Engulfing and Bearish Engulfing. The engulfing candle’s bearish or bullishness is wholly based on its position in relation to the existing trend of an underlying asset.

Understanding The Types

A bullish engulfing pattern can appear anywhere in the trend. But it holds more significance if it appears in a downtrend. This pattern indicates the surge in buying pressure as it shows that more buyers are entering the market, driving the price action further up. This pattern consists of a bearish red candle and the second bullish candle completely engulfs the body of the previous red candle.

Interpretation – Always look for the bullish engulfing pattern in a clear downtrend. For entering a trade, traders must combine this pattern with support resistance levels or with any reliable technical indicator for additional confirmation of the trend reversal.

Bearish engulfing pattern is just the opposite of the bullish engulfing pattern. Instead of appearing at the bottom of the trend, this pattern appears at the top of the trend. We can say that more accurate and reliable signals can be generated when this pattern appears at the top of an uptrend. The bearish engulfing pattern consists of two candles. The first one being the green candle. This one is, next, engulfed by the subsequent red candle. The pattern triggers a reversal in an existing trend. It indicates the buyers are no longer able to push the price higher, and the bears took control of the market.

Interpretation – Always look for the bearish engulfing pattern in a clear uptrend. The second red candle must engulf the green candle ultimately, showing that bears are piling into the market aggressively. For entering a trade, traders must look for additional confirmation, such as support resistance levels or by using any reliable technical indicator.

Pairing the Engulfing pattern with Support/Resistance

Every trader has a unique way of trading the market. Some traders like to go with the trend while some traders only trade counter-trend moves. In this strategy, we have paired the engulfing pattern with support & resistance to show you how to trade the reversals correctly.

Confirm the downtrend first on your trading timeframe 

The first step of this trading strategy is to confirm the trend of any underlying asset. Let’s trade the bullish engulfing pattern. So as discussed, we should be finding the downtrend on the price chart. As you can see in the below NZD/USD currency pair was in an overall downtrend.

Find out the Bullish Engulfing pattern on your trading timeframe

The key to successful trading is to follow all the rules of the trading strategy. The engulfing pattern can be seen all over the price chart, but obviously, we can’t trade all of these patterns. We should be trading only those engulfing patterns that appear in the major support area.

In the below image, the NZD/USD was in an overall downtrend, and price action respects the major support area. Market prints the engulfing pattern at the support zone, which indicates that the buyers are more likely to lead the price.

Entry, Take Profit & Stop loss

Enter the trade right after you see the bullish engulfing pattern at the S&R area. Take-profit targets depend on your trading style. If you are a swing trader or full-time trader, hold your positions for more extended targets. If you are an intraday trader, close your position at the nearest resistance area.

You can also book partial profits at a significant resistance area and close your full position when the market prints the bearish engulfing pattern. In this strategy, we took the buy at a significant support zone, so it’s a healthy practice to put stop loss just below the support area.

Look at the below image; you can see that price action goes above the significant resistance area. But we made sure to close our positions at the resistance area as we don’t want our money to be blocked in a single trade for a long time. Overall it was good 4R trade.

Bottom Line

There are so many different ways to take trades to use the engulfing pattern. Statistically, the engulfing pattern works better when traded at the bottom or top of the trend. So make sure to check their location before placing the trades. One other possible way to trade am Engulfing Pattern is when it is combined with Moving Averages. But even that way, make sure to trade the engulfing pattern at the significant support and resistance areas. Some traders use reliable indicators like MACD to confirm the trend reversals by using the overbought and oversold levels. That’s about the Engulfing pattern strategy. Make sure to find these patterns and trade them in your upcoming trading activities. Let us know if you have any questions in the comments below. Cheers!

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Forex Price-Action Strategies

It’s Not Only the Levels, but It’s also about Zones

We keep talking about support, resistance, and their levels. Sometimes we forget that it is not only about the levels. A lot depends on their zones. No doubt, in the end, we are to calculate their levels at the time of taking an entry. However, we are to keep an eye at the zones where the price may create a new trend. In this article, we are going to demonstrate an example of that.

We keep talking about support, resistance, and their levels. Sometimes we forget that it is not only about the levels. A lot depends on their zones. No doubt, in the end, we are to calculate their levels at the time of taking an entry. However, we are to keep an eye at the zones where the price may create a new trend. In this article, we are going to demonstrate an example of that.

We keep talking about support, resistance, and their levels. Sometimes we forget that it is not only about the levels. A lot depends on their zones. No doubt, in the end, we are to calculate their levels at the time of taking an entry. However, we are to keep an eye at the zones where the price may create a new trend. In this article, we are going to demonstrate an example of that.

This is a daily chart. The chart shows that the price upon finding very strong support heads towards the upside. It may have found its resistance as well, which pushes the price towards the downside. Take note that the level of support is extremely strong, which creates a secure buying zone.

The price tried to find its support at the last swing high. However, it breaches the level and comes further down. It produces an Inside Bar. It looks good for the sellers so far. Let us proceed to the next chart to find out what the price does.

The price consolidates with several candles. Look at the last candle. This is an engulfing candle which states that buyers on the minor time frames are confident enough to push the price towards the North. The resistance is far enough. Thus the daily-H4 chart traders are to flip over to the H4 chart to find out a long opportunity.

This is the H4 chart. The chart produces a Spinning Top. A bullish reversal candle, along with a breakout at the resistance, will be the signal to go long. Let us find out from the next chart whether it consolidates more or produces the bullish reversal candle.

It produces an H4 bullish engulfing candle as the reversal candle. It has an upper wick, but the body looks good enough to attract the buyers. A long entry may be triggered right here. Let us find out how the price heads with the bull. Do not forget it may go another way around, as well.

It goes towards the buyers’ desired direction. The buying pressure has been good as well. However, the last candle comes out as a bearish engulfing candle. It may be time for the buyers to close their entry.

The Bottom Line

We have demonstrated an example that the price creates a new trend, not right from the last level of support. It instead creates it from a support zone. Traders are to keep an eye on the price action around the support/resistance zone to be able to find out more entries.

Categories
Forex Price-Action Strategies

Risk-Reward and Its Impact on the Price Behavior

Risk-reward is an essential factor in price action trading. When the price makes a breakout and produces a signal, the first thing traders are to calculate is risk-reward. It does not matter how the price heads towards a direction, significant higher high and lower low are to be calculated. These are what determine risk-reward. In today’s lesson, we are going to demonstrate an example of how risk-reward may have an impact on the market.

Risk-reward is an essential factor in price action trading. When the price makes a breakout and produces a signal, the first thing traders are to calculate is risk-reward. It does not matter how the price heads towards a direction, significant higher high and lower low are to be calculated. These are what determine risk-reward. In today’s lesson, we are going to demonstrate an example of how risk-reward may have an impact on the market.

Risk-reward is an essential factor in price action trading. When the price makes a breakout and produces a signal, the first thing traders are to calculate is risk-reward. It does not matter how the price heads towards a direction, significant higher high and lower low are to be calculated. These are what determine risk-reward. In today’s lesson, we are going to demonstrate an example of how risk-reward may have an impact on the market.

The above chart is a daily chart, in which the price action produces a Double Top along with an Inside Bar, and its neckline is not too far. The sellers are to wait for a breakout at the neckline and go short on the pair. Let us flip over to the H4 chart.

The H4 chart produces an Inside Bar as well as the reversal candle. However, the price heads towards the neckline with good bearish momentum. If the price makes an H4 breakout, the sellers may go short up to the last swing low on the H4 chart. The daily support, however, lies a bit further down.

The price is right at the neckline level. It is at a critical level since the last candle closes right at the neckline level. It could go either way from here. Let us see which way it heads.

A massive breakout takes place here. However, look at the last swing low. The price is adjacent to it. This means risk-reward is not lucrative at all. Traders must not sell from here on this chart.

It makes a breakout, which is fantastic. However, the black marked level is daily support. The sellers may take a short entry from here, but that is on the H4-H1 chart combination.

As expected, the price heads towards the daily support, and it produces a bullish reversal candle. It made such a strong bearish move, but the daily-H4 chart combination traders have not found any entry because of the risk-reward issue. If the daily-H4 combination chart traders found an entry, the bearish move would have been more consistent. Let us find out what happened next.

The price heads towards the level sellers were waiting for the price to make a breakout at first. This one is another inconsistent move on this chart. That means an inconsistent move may bring another inconsistent one. To sum up, we could conclude by saying that the risk-reward factor may make the price inconsistent to some extent.

Categories
Forex Basic Strategies Forex Trading Strategies

Trading False Breakouts Like a Professional Forex Trader

Introduction

Introduction

Introduction

Often there are times in the market when the price breaks a certain significant level, and most of the novice traders immediately jump into the market. But, suddenly, the price reverts quickly, stopping out these traders or putting them in a losing position. Most of the experienced traders would have exited their positions when they realized they are trapped by the big whales like industry or institutional traders.

But beginner traders often become the victims of these false breakouts, and it affects their psychology as well. They will start doubting their trading strategies, and the fear element will surpass their confidence. Instead of falling into the negative state of mind, traders should learn how to use these false breakouts to their advantage so that they can profit from it. In this article, let’s discuss how to trade the false breakouts properly.

Most of the traders often consider false breakouts as a negative thing in the market. The general perception is that, by trading the false breakouts, they are taking the unnecessary risk, or it is not the correct way to trade. Some traders also believe that simple breakouts are more comfortable to trade. It is true, but simple breakouts won’t provide a great risk-reward, and also, it is not a consistent way to trade the market. On the other hand, successful & experienced traders see the false breakout logically and consider it as an opportunity to make some quick profits.

There are a lot of ways to trade false breakouts. Some traders trade them in conjunction with indicators, and some use it with trend lines and support resistance. In this strategy, we will show you the most appropriate way of trading false breakouts.

Trading the false breakout by using the major S&R levels

False breakouts occur in all types of markets, such as Forex, Stocks, Futures, and Options. They also occur in all kinds of market conditions. But the critical thing to remember is that every false break out is not worthy enough to trade. Always consider trading the false breakouts by following the trend of the market. That is, if the trend is up, look for the buy-side false breakout and in a downtrend, look for sell-side false breakouts.

Step 1 – Find the trend of the higher timeframe

This step is simple yet crucial because we need to confirm the trend of the market. Keep in mind that most of the lower timeframes always follow the direction of the higher timeframe. To explain this strategy, we are examining the uptrend of the GBP/USD forex pair.

Step 2 – Look for the significant S&R in the lower timeframe

Most of the false breakouts occur near the support and resistance level. The reason brokers and market movers use these levels is to manipulate the market as is these areas act as a significant supply-demand zone. This makes it easier for the bigger players to fill more orders.

Step 3 – Look for the false breakouts at the S&R level

As we know by now, most of the false breakouts happen at major support resistance area. A trader can set the alarm on the price chart to see when the price action is at a major level. When the price breaks these levels, wait for the false breakout to trade the market.

In the below image, GBP/USD was in an uptrend. On 15 Min chart during the pullback phase, prices started holding at the support area. On 29th Nov, look at the first circle where the price action prints the false breakout. But there is no way to trade that breakout. Because after that, the price action dipped below the support area, which is a sign of a false breakout. So it is an indication to go long on the GBP/USD forex pair.

Step 4 – Entry, Stop loss and Take profit

A trader should be entering the market when the price action holds at the significant support resistance area as it confirms that the levels are active to hold the prices. \

Take profit placement depends on your trading style. If you are an intraday trader, we suggest you close your position at a recent high. If you are a swing trader, look for another false breakout to load more positions. You can also use the recent high or any support resistance area of the higher timeframe to close all of your positions.

Most of the false breakouts are sure shot trades in the market. Place the stop loss just below the recent low, or at the closing of the most recent candle. If you are a conservative trader, then put stop loss bit spacious to your entry point.

In the below image, we have placed the stop loss just below the closing of the recent candle, and we have captured the 4R trade in the market.

Bottom line

It is essential to learn the logic and psychology behind any false breakout. Most of the time, the risk is small in these types of trades, and it is important not to be greedy while placing more extended targets. If there is no momentum in the market, close your positions, and if the trend is healthy to go for longer moves. You can still trade the regular breakouts, but throw relatively less money when compared to the false breakout trades. Also, make sure to practice trading false breakouts in a demo account until you master it. We hope you liked this article. Cheers!

Categories
Forex Price-Action Strategies

Never give Up: Chase it All the Way

Trading is a game of probability, which requires patience and amazing mental strength. A trader has to have ‘never give up’ mindset. In today’s trading lesson, we are going to demonstrate an example of the importance of having ‘never give up’ attitude.

Trading is a game of probability, which requires patience and amazing mental strength. A trader has to have ‘never give up’ mindset. In today’s trading lesson, we are going to demonstrate an example of the importance of having ‘never give up’ attitude.

Trading is a game of probability, which requires patience and amazing mental strength. A trader has to have ‘never give up’ mindset. In today’s trading lesson, we are going to demonstrate an example of the importance of having ‘never give up’ attitude.

The price heads towards the North by making new higher highs. The last candle comes out as a bearish candle. However, the overall trend is still biased with the bull. Thus, traders shall look for long opportunities here until it makes a breakout at the last swing low.

The last candle makes a breakout at the last swing low. The bear seems to have taken control. Traders are to go short on this chart upon upside correction. The last candle closes within the level, where the price reacted heavily earlier. Thus, the price may consolidate hard here.

It does not. It rather makes a breakout straightway. Moreover, it produces another bearish candle and approaches towards a significant level of support. Usually, after making such big movements without having consolidation, the price gets tired and choppy.

It is not tired on this occasion though. It consolidates and produces a bearish engulfing candle closing below the last support. A short entry may be triggered right after the candle closes by setting Stop Loss above the consolidation resistance.

Off she goes. The price heads towards the downside with extreme bearish pressure. Two consecutive bearish candles and there is still no sign of a reversal. The sellers may keep holding their position to make more pips. The movement justifies the statement that the market can be very tricky from time to time. It can do things (market move) that we may not even imagine on that particular occasion.

After making the first breakout, the price makes an abrupt move. Usually, in most cases, the price does not continue its journey towards the trend. Either it consolidates for a long time or it makes a reversal. Many price action traders may not want to keep their eyes on the chart. They may think it is a waste of time. However, the above example shows us that it is not waste. Experienced price action traders must have made full use of that bearish move. If a trader wants to survive in this market, he is to be patient, perseverant, and hard working. With these three qualities, he must have ‘never give up’ mind setup.

Categories
Forex Daily Topic Forex Price-Action Strategies

An Old Theory about Support/Resistance

Support and Resistance are the two extremely important components in financial trading. Price action traders rely on them as a critical component of their trading strategies.

Support and Resistance are the two extremely important components in financial trading. Price action traders rely on them as a critical component of their trading strategies.

Support and Resistance are the two extremely important components in financial trading. Price action traders rely on them as a critical component of their trading strategies.

Ideally, 90% of the indicators are able to reveal support and resistance levels. An ancient theory of support and resistance says that support becomes resistance and vice versa and interesting point is the theory still works nowadays as well as it did in the past. In today’s lesson, we are going to demonstrate an example of this long-used theory.

In the above figure, the price heads towards the North with good bullish momentum. It pauses at a level of resistance, where the price had a rejection earlier. The equation is simple here. If the price produces a bearish momentum and makes a breakout at the last swing low, the sellers are going to look for short opportunities. In case of an upside breakout, it remains buyers’ territory.

A bullish engulfing candle breaches the resistance. If the price confirms the breakout, the buyers keep dominating here. It seems that the sellers do not have any reasons to be optimistic soon.

The breakout level holds the next candle, as well. This move is a confirmed breakout. However, the buyers are to wait for price consolidation, which gives them a level of support to set stop loss and an upside breakout to trigger an entry.

Oh! No, a bearish Marubozu candle comes back in. All of a sudden, things look a bit different here. The buyers and the sellers both have chances. Let us find out what the price does next.

The price confirms the bearish breakout with an Inside Bar. Look at the last candle on the chart – a bearish engulfing candle forms at the resistance zone. The sellers may flip over to the H1 chart to take a short entry since it is an H4 chart.

The price takes some time to get bearish. It may have been consolidating on the H1 chart for several hours. However, it does get bearish in the end — the price heads towards the South with extreme bearish momentum. The last candle comes out as a Doji candle, which may make some sellers think about taking an exit. However, the way it has been heading towards the downside, most likely it may go towards the last swing low.

The Bottom Line

There are so many strategies, indicators, EAs in the market. It would be tough to suggest if you ask me which one works best. Then again, if I am asked to choose just one strategy, my choice would be “Sell at flipped over resistance; buy at flipped support.”

Categories
Forex Psychology

Having the Mindset to Deal with a Frustrating Situation

Patience is one of the most essential components of Forex traders. Traders are to keep patience in every single second. Before triggering an entry, a trader is to find out

Patience is one of the most essential components of Forex traders. Traders are to keep patience in every single second. Before triggering an entry, a trader is to find out

Patience is one of the most essential components of Forex traders. Traders are to keep patience in every single second. Before triggering an entry, a trader is to find out a trend, key levels, momentum, news events, etc. After all this hard work, he may not be able to take the entry. It is frustrating, but for Forex traders, it is a usual thing. A trader must accept it simply. In today’s lesson, we are going to demonstrate an example of that.

The price heads towards the South; it consolidates and heads towards the North. The price breaches a level of resistance, which the buyers are to keep an eye at for a bullish reversal. Let us proceed to find out how the next chart looks.

The buyers were waiting for the red-marked level to hold the price and produce a bullish reversal. If the level had held the price and pushed the price towards the North breaching the highest high, the buyers would have taken a long entry. They must have waited eagerly, but all went in vain.

The price headed towards the South further and found its support. After finding the support, it heads towards the North again. On its way, it makes a breakout at the highest high of the last bearish wave. The buyers are to keep an eye on this pair again to find a long entry. To take the long entry, the price is to come back at the breakout level, to produce a bullish reversal candle, and to breach the highest high of the last wave.

This time it looks good. A candle closes within the level of support. The buyers are to keep an eye to get a bullish reversal candle first. This means they have to be patient again. Let us proceed to find out what happens next.

The level produced a bullish reversal candle, but it did not breach the highest high. It instead came down and breached the support level. In a word, all efforts have gone in vain. What wastage of time!

                   The Bottom Line

If you want to take trading seriously as a business or a consistent source of income, you must not think that it is a wastage of your time. It is an investment. Traders must be patient and not be frustrated when opportunities are lost or do not come as per expectation. They must deal with it professionally.

The bad thing is it does not come with practice or experience. The good thing is it is all about mindset. Even a beginner may have a mindset to deal with a situation like this, whereas it might frustrate a trader with five years of experience. We must remember that if it frustrates too much, it hurts trading performance.

 

Categories
Forex Basics Forex Daily Topic

Attributes of the Signal Candle Not to be Ignored

After choosing a pair to trade, traders wait for the signal candle at the desired zone/level to take an entry. The attributes of the signal candle are important. Ideally, a

After choosing a pair to trade, traders wait for the signal candle at the desired zone/level to take an entry. The attributes of the signal candle are important. Ideally, a

After choosing a pair to trade, traders wait for the signal candle at the desired zone/level to take an entry. The attributes of the signal candle are important. Ideally, a signal candle is to be a Marubozu candle, barely having an upper or lower shadow, and longer than other candles around. In today’s lesson, we are going to show an example of how attributes of a signal candle affect the market. Let us proceed.

The price after being bearish finds its support. A long consolidation suggests that a breakout towards either side makes the chart lively again. An upside breakout and the confirmation offer good risk-reward considering the last swing high. A downside breakout seems even more rewarding. Let us find out which way the breakout takes place.

It is an upside breakout. The breakout candle looks fantastic. Buyers are to wait for consolidation and breakout at the highest high to go long on the pair. However, buyers shall calculate that the last swing high is not too far away now.

The price continues its bullish journey towards the last swing high, and it consolidates. Flipped support is to be adjusted here considering the Inside bar. However, an upper shadow at the previous swing high holds the price as well up to the Inside bar. The last candle comes out from the zone, though. Look at its attributes

  • It is a bullish engulfing candle
  • It breaches the resistance zone
  • It is a Bullish Marubozu candle

Many of us may trigger an entry here by setting Stop Loss below the lowest low of the candle. Let us find out what happens next.

The price comes down again. It may have swept away many Stop Losses. Thus, the last entry gets the buyers loss. What do you think about the last candle?

  • It is a bullish engulfing candle
  • It breaches the resistance zone
  • It is a Bullish Marubozu candle and
  • It breaches the last swing high

 

Traders may want to trigger an entry here. Let us go to the next chart to see how it goes.

This time it works excellently well. A question may arise here: what the difference is between these two candles?. The only difference that can be observed is, “It breaches the last swing high.”

The Bottom Line

We have demonstrated an example today and learned a lesson. Traders are to be immaculate in making a decision, and they have to calculate every single aspect that is related to the trading decision.

 

Categories
Forex Basic Strategies

Learning The Art Of Fading In Trading

What is Fading?
Fading involves placing trades against the trend to profit from a reversal. Using the concept of fading, a trader will short sell, expecting the momentum to fade

What is Fading?
Fading involves placing trades against the trend to profit from a reversal. Using the concept of fading, a trader will short sell, expecting the momentum to fade

What is Fading?

Fading involves placing trades against the trend to profit from a reversal. Using the concept of fading, a trader will short sell, expecting the momentum to fade when the market is in an uptrend. Likewise, he/she will buy a currency pair with the expectation that the move will fade away and reverse when the market is in a downtrend.

The fading strategy involves three assumptions:

  • The price is either at the overbought or oversold condition.
  • Early buyers or sellers are getting ready to take profits.
  • Current position holders might be at risk.

Overbought and oversold conditions can be identified using technical indicators such as the Relative Strength Index (RSI). Momentum shows the signs of shifting of forces from bulls to bears or vice-versa. And as these signs develop, current holders of the asset start to rethink their positions.

These conditions get exaggerated after an earnings announcement or news release. This may lead to a knee-jerk reaction on the part of other traders to sell the currency pair. As a result, this reaction gets overextended, and a mean-reversion takes place.

Now let us see how does the strategy work and what are the necessary steps you need to take to profit from the strategy:

The Fading strategy

Step 1 – Identify market extremes from the daily time frame 

The first step is identifying overbought and oversold zones using technical indicators or chart patterns.

The popular indicators used for identifying the zones include:

The overbought and oversold conditions are indicated by reading above or below a certain level. For example, the market is said to be in an overbought condition if the RSI is above 70, and it is said to be in oversold condition if the RSI is below 30. This can help traders in identifying fading opportunities.

In the above chart, we can see how the RSI indicator was crossing the normal range when the market gets into the overbought zone. One can find trading opportunities just using the RSI indicator stand-alone. But to trade like how professionals trade, we need to use a lot more tools.

Traders may also use familiar chart patterns or analysis based on price action and watching the price continuously.

Step 2 – Look for signs of capitulation

The second step in the strategy is to look for early signs of capitulation or change in the short-term trend using momentum. This can be mostly done by using candlestick patterns or price action with a volume indicator. We suggest looking for price action signals.

Some other signs to watch for include:

  • When technical indicators start to fade or move away from their extreme overbought or oversold levels.
  • The volume of the significant trend starts decreasing, or the volume of the opposite trend starts increasing.
  • Bearish candlestick patterns appear (in case of an uptrend), or critical support and resistance are broken.

It’s essential to identify these signs early to maximize profit and avoid mistakes.

The signs mentioned above can be explained better with the help of some figures.

Image 1

In the above image, we clearly see that the market is in an uptrend and has been trending from a few days (as it is a daily chart). The volume of the significant trend is also high with the decreasing volume of the sellers, which is a good sign for bulls. But in the end, the volume starts to decrease. The RSI declines sharply after entering the overbought zone for a while.

Image 2

Immediately we see an increase in the volume of sellers with a drastic drop in the RSI indicator (Image 2). The signs are getting stronger for a reversal, and this trend can continue. All the traders who are holding the currency pair start exiting the market. This could be one of the most reliable signs for us to take appropriate action. 

Image 3

Finally, we see a break in the ‘support’ by the bears with high volume. Now we have combined all the tools, and each of them is indicating a reversal. Hence, we should take a position in the opposite direction. This is precisely the kind of setup that you need to be looking for every time.

Image 4

In order to find the exact entry, we need to magnify the chart. For this, you need to go on a lower time frame to analyze and set your stop-loss or target based on that time frame. This is mandatory for getting precise entries. The above figure is the lower time frame chart of the explained example.

Note: Images 1, 2 & 3 belong to the daily timeframe, whereas Image 4 belongs to the 4H timeframe.

Step 3 – Enter the trade with a stop-loss and take-profit

The last step is to enter the market with a compulsory stop-loss and take profit to ensure risk management is in place. In this strategy, a stop-loss order can be placed above the price where the RSI enters the overbought/oversold zone. Avoid putting small stop-loss as you can prematurely get stopped out from the trade.

Profit can be booked when the volume of your trend starts to decrease. Now, the stop-loss and target would be placed, as shown in the above chart. This trade would result in a risk-to-reward ratio of a minimum of 1:5. Traders can also use a moving average or any other indicator to set a profit-taking price level. Limit orders are almost used by all traders to avoid any slippage or other issues, particularly in less liquid assets.

Bottom line

Fading strategies can be considered as risky as you are going against the trend. It is always a good idea to take a trade if the risk to reward ratio is favorable. These strategies are commonly used by short to medium term traders to capitalize on short term reversals. Even though it seems risky, it can be extremely profitable if appropriately used. This is because the market has reached a saturation state, and there has to be some balancing force. This is why fading strategies are also known as contrarian strategies. Because they work on the assumption that prices deviating far from the trend, tend to reverse and revert back. That’s about Art Of Fading. If you have any queries, let us know in the comments below. Cheers.

Categories
Forex Basic Strategies

Even a Choppy Price Action Offers Entries

The market moves in three ways upward, downward, and sideways. In today’s lesson, we are going to demonstrate an example of a Rectangle breakout and an entry from a choppy

The market moves in three ways upward, downward, and sideways. In today’s lesson, we are going to demonstrate an example of a Rectangle breakout and an entry from a choppy

The market moves in three ways upward, downward, and sideways. In today’s lesson, we are going to demonstrate an example of a Rectangle breakout and an entry from a choppy price action. Let us have a look at the chart below.

The price action is choppy in this chart. Typically, traders avoid this kind of price movement. However, if we want to take trading as a full-time business, we are to widen our eyes. An entry can be found even in this market. Concentrate on the rectangle drawn here. After all these bounces, rejections the price finds its support and resistance within the rectangle.

The chart produces a bearish engulfing candle right at the resistance of the rectangle. This is a sign that something may happen. Let us assume a bearish move may occur. The first candle of the bearish trend looks good. A downside breakout with good momentum is the second thing that the sellers may wait to get.

The next candle comes out as a bearish candle followed by an Inside Bar. Things are getting better for the sellers. A bearish engulfing candle closing below the support would be the signal to go short for the sellers.

Here it is. The breakout candle is a bearish Marubozu candle. We may trigger a short entry right after the candle closes. Let us find out where we will set our Stop Loss.

Many traders may suggest setting the Stop Loss above the resistance of the rectangle and setting the Take Profit with the same distance. This is a good idea. However, we may set our stop-loss just above the resistance of the last consolidation. The reason is the price consolidates before making the breakout at the support. If the price made a breakout without the consolidation, we would have set our Stop Loss differently. By setting Stop Loss above the last consolidation’s resistance, we are to keep an eye with our Take Profit level.

We may set our Take Profit all the way down at the last swing low. The price may have kept going towards the major support. Look at the chart above. What do you think? The price is still very bearish but it produces a bullish reversal. That is too with a gap. The price action traders do not like price gaps. Considering the fact that we have set our Stop Loss as close as it can get, thus it may be the time to close our trade and come out with the profit.

The Bottom Line

Even a choppy market ends up producing an excellent trading signal. Our first choice shall be trending markets to look for entries. However, if we can spot out some entries from the choppy market, it would surely make us be more profitable.

Categories
Forex Price-Action Strategies

An Engulfing Candle at a Flipped Resistance

An Engulfing candle is a strong bearish reversal candlestick. This makes traders look for trading opportunities. In today’s lesson, we are going to demonstrate an example of how an Engulfing

An Engulfing candle is a strong bearish reversal candlestick. This makes traders look for trading opportunities. In today’s lesson, we are going to demonstrate an example of how an Engulfing

An Engulfing candle is a strong bearish reversal candlestick. This makes traders look for trading opportunities. In today’s lesson, we are going to demonstrate an example of how an Engulfing candle creates an entry. Let us proceed.

This is a daily chart. The price heads towards the downside with good bearish momentum. Traders shall wait for the price to have consolidation or an upside correction followed by a bearish reversal candle or pattern.

The price starts having the correction. It produces a bearish reversal candle after three consecutive bullish candles. The bearish reversal candle is an Inside Bar. This is not a strong bearish reversal candle. However, we still may flip over to the H4 chart (this is a daily chart) and wait for an entry.  The H4 chart does not produce any bearish momentum. Thus, the price goes towards the upside instead. Have a look at the chart below.

This is one strong bullish candle. However, the candle closed within the level, which the price breached earlier. Traders must be patient here to find out what the price does around this level. Does it make an upside breakout or produce a bearish reversal pattern?

It produces a Doji candle right at the flipped resistance followed by an Engulfing candle. This surely attracts traders to keep an eye on the pair to look for short opportunities. The question is, how do we find out entries? When the price is at correction, if we have such a bearish reversal candle at the valuable area, we shall flip over to a minor chart. This is a daily chart. Thus, we shall flip over to the H4 chart. Let us flip over to the H4 chart and find out how that looks.

The H4 chart looks bearish. We are to wait for consolidation and a downside breakout to take a short entry. This is what comes out after a while.

The price produces two bearish candles followed by a bullish one. Any bearish reversal candle breaches the support of the consolidation is the signal to go short here.

This is it. A bearish engulfing candle breaches the support of consolidation. A short entry may be triggered right after the candle closes. Let us find out how the trade looks like in a nutshell.

We may set our Stop Loss above the resistance of consolidation. The Entry-level is very explicit, as it has been explained a bit earlier. We may set our Take Profit at the last lowest low where the price started its correction on the daily chart. Alternatively, we may wait for the price to produce a bullish reversal candle. In this chart, we may come out with our profit right after the last candle (bullish) closes. The choice is yours regarding ‘Take Profit.’ Both have merits and demerits.

The Bottom Line

In the above examples, we have learned what to wait for when to flip over a chart, and on what entry shall be triggered. It does look and sound easy. Trust me. It’s never as easy as it looks when you are to deal with the live market. However, having a lot of practice, and with experience, it surely becomes easier.

Categories
Forex Price-Action Strategies

Trading is the Hardest Way to Make the Easiest Money

Financial traders need to be very alert and patient to deal with the market. These two components are vital for a trader to be successful in trading. In today’s lesson

Financial traders need to be very alert and patient to deal with the market. These two components are vital for a trader to be successful in trading. In today’s lesson

Financial traders need to be very alert and patient to deal with the market. These two components are vital for a trader to be successful in trading. In today’s lesson, we are going to demonstrate an example of alertness and patience. Let us get started.

The price heads towards the South. Ideally, a trader shall look for short opportunities in a chart like this. The last candle comes out as a bullish reversal candle. It is time for consolidation and waiting to get a downside breakout to take a short entry.

The price seems to go too far. It consolidates and produces a bearish engulfing candle. We may flip over to the H4 chart to find an entry since this is a daily chart. The support level looks strong since it created a long bullish move. The price may play around the level for a while.

As expected, the price stalls at the level of support. Things are different now. A downside breakout would make the pair bearish. A bullish reversal candle would make the traders look for long opportunities. This is where traders must be alert and never be rigid with their initial thought.

A bullish reversal candle forms right at the level of support. Traders may want to flip over to the H4 chart to look for long opportunities. We are not flipping over to the H4 chart this time since I know what happens afterward. Our trading lesson today is going to emphasizes something else.

The price heads towards the South instead. The H4 chart does not offer any entry after that daily bullish engulfing candle. Now, the price action is choppy. It seems that it is a chart to avoid for a while.

Not really, be alert. The price obeys a down-trending channel. Thus, any rejection at the upper band may create short opportunities. The price heads towards the resistance. Let us wait for a bearish reversal candle at the upper band (resistance of the channel).

The price makes a breakout at the upper band instead. It consolidates and produces a Spinning Top. Again, we are to change our trading direction. This time we are to go long.

The last candle breaches the horizontal resistance after consolidation. A long entry may be triggered right after the candle closes. Let us proceed to find out what happens next.

Two consecutive bullish candles form right after the breakout candle. Formation of a bearish reversal candle signals that it may be time to come out with a profit. At last, we make some green pips by going long.

The Bottom Line

This is an example of why we must not be rigid with our direction and how important it is to be alert with price patterns. Trading is never easy. As they say, “Trading is the hardest way to make the easiest money”. If we work hard in learning, only then we will be able to make money easily.

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Forex Basic Strategies

A Twist in the Tale

The Forex market can be very unpredictable. It is a game of probability. With more experience and knowledge, a trader increases the chance to be right in making a trading

The Forex market can be very unpredictable. It is a game of probability. With more experience and knowledge, a trader increases the chance to be right in making a trading

The Forex market can be very unpredictable. It is a game of probability. With more experience and knowledge, a trader increases the chance to be right in making a trading decision. Having immaculate risk management is another aspect that keeps a trader safe with his investment. In today’s lesson, we are going to talk about the unpredictability of the market.

Let us start with a daily chart of a Forex pair.

The price makes a bullish move and finds its resistance. After four daily candles, the daily chart produces a bullish engulfing daily candle. This is a powerful bullish reversal candle, which forms right at a flipped support. Have a look at the chart below.

The chart above shows that the bullish engulfing candle forms at the flipped support. This means buyers on this chart are to go long on a chart pattern called ‘ABC’ or ‘123’. This is a lucrative and consistent chart pattern, which price action traders love to trade. Let us find out what happens next.

The price stalls and has a rejection at the same level. The buyers would love to get a breakout here to go long and grab some green pips. However, the chart produces a bearish engulfing candle instead. What do you think a trader should do here?

He shall start looking for short opportunities. This is the daily chart. Thus, he shall flip over to the H4 chart to find out a short opportunity.

This is how the H4 chart looks. A very strong bearish candle followed by a little Inside Bar. The trader (the seller) is to wait for consolidation and a bearish reversal candle to go short.

The price consolidates more. It produces a good-looking bullish candle. Let us find out how the next candle comes out. Do not forget that the sellers are waiting to get a bearish reversal candle breaching the lowest low.

This is it. A bearish engulfing candle closes below the level of support. The sellers have been waiting to get a signal candle like this. A short entry may be triggered right after the last candle closes. Let us find out what happens next.

As expected, the price heads towards the South with good bearish momentum. We see the first H4 bullish reversal candle forming at the daily support as well. This may be time to take out the profit.

The Bottom Line

Do you notice how things change within a candle? Before that bearish engulfing daily candle, the pair looks extremely good for the buyers. An upside breakout would make them go long on the pair and push the price towards the North. However, that does not happen, but the price comes down instead. This is what I call “Twist in the tale.” Forex traders often get these twists.

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Forex Price-Action Strategies

A Breakout and the Confirmation

Support and Resistance, also known as Supply and Demand, have long been used in the financial markets. The most characteristic feature of support/resistance is a level of support becomes resistance

Support and Resistance, also known as Supply and Demand, have long been used in the financial markets. The most characteristic feature of support/resistance is a level of support becomes resistance

Support and Resistance, also known as Supply and Demand, have long been used in the financial markets. The most characteristic feature of support/resistance is a level of support becomes resistance, and a level of resistance becomes support. The price after making a breakout comes back to the level and makes a move towards the established trend. The price does not always confirm all the breakout levels, though. Traders do not know which broken level is going to produce a trading signal. In reality, they do not even have to know or guess. They have to make decisions according to the price movement or Price Action. Let us have a demonstration of this.

The price is up trending. Traders shall look for long opportunities. To be honest, the last candle on the chart is a buy signal. It was a week ending candle, which must have held the buyers back. Let us wait for a while to get more clues.

The last candle came out as a bearish engulfing candle. Such price action usually makes a pair choppy. The buyers may want to wait for an upside breakout to go long. However, a bearish engulfing candle may not let that happen.

A strong bullish candle closes within the resistance. It seems that the chart may produce a Double Top. Thus, the bear may come and dominate. Let us draw the Neck Line and resistance of the Double Top.

The equation is very simple here. A breakout at the neckline attracts the sellers, which is more likely. On the other hand, an upside breakout attracts buyers. Let us find out which way the price heads to.

The price makes a breakout at the Neckline. However, it does not consolidate around the Neckline after the breakout. Unfortunately, the sellers do not get an opportunity to go short here. It often happens with the traders. Traders’ life is never easy!

Here is a question. Do you see anything interesting? Has the price made another breakout?

It has made a breakout at the red-marked level. It goes back to the level to confirm the breakout, as well. Moreover, it has produced a bearish engulfing candle with a long upper shadow. Things look good for the sellers. A breakout at the lowest low would be the signal to go short.

Here comes the breakout. A bearish Marubozu candle breached the lowest low. The sellers may want to trigger a short entry right after the last candle closes. Let us find out how far down it goes before producing any bullish reversal candle.

Here comes the breakout. A bearish Marubozu candle breached the lowest low. The sellers may want to trigger a short entry right after the last candle closes. Let us find out how far down it goes before producing any bullish reversal candle.

The price heads toward the downside with good bearish momentum. It produces a Doji Candle. It may be time to come out with a profit.

The Bottom Line

The price does not confirm all the breakouts. That does not mean we should start pulling our hair. Concentrate hard and calculate well. The next opportunity is just around the corner.

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Forex Basic Strategies Forex Trading Strategies

What Should Know About Trading Ranges Using Support & Resistance?

What is Range trading?
It is said that the market only trends for 30% of the time. So it becomes necessary to have a range trading strategy to take advantage

What is Range trading?
It is said that the market only trends for 30% of the time. So it becomes necessary to have a range trading strategy to take advantage

What is Range trading?

It is said that the market only trends for 30% of the time. So it becomes necessary to have a range trading strategy to take advantage of the other 70% of the time. Range trading is not difficult, but it requires discipline and determination to make most out of it. When a market is trending, it forms a pattern of higher highs and higher lows, in case of an uptrend. The move, in this case, is really strong and is known as an impulsive move. The other type of movement is known as the corrective move, which comes in the form of a pullback. Impulsive moves are stronger than corrective moves.

When the market is making any such moves, it finds itself stuck between a high or low and continues to oscillate between these two points. It means buyers and sellers are equally strong, and this creates a very choppy environment.

Traders now trade these extremes and continue to trade until price breaks out on either of the sides. These two points act as potential support and resistance points, used by traders to place their orders.

In the above chart, we have drawn a few lines from where the market bounced off. The price action in those areas creates many trading opportunities. The instrument in the chart first trends down and then puts up a low (marked by line 1). Initially, you might think it as a downtrend and expect the pattern of lower lows and lower highs to continue.

Then you see the market rally to line 2, from where the market falls back to line 3 but does not fall till line 1. This highlights the fact that the market is no more trending. The market instead could be stuck in a range between line 1 and line 2. These are not ‘defined’ prices. Always consider them as zones with a margin of error both outside and inside the range. A trader will look to position himself/herself at these zones of support and resistance that forms the range.

Why support and resistance?

The price that is stuck between these two extremes has a lot of significance. This is because, at this point, the price can either Stop, Reverse, or Breakout. When you have the right knowledge, it will stop you from simply pushing the buttons and will make you trade with a defined strategy.

Range = Consolidation

A range is nothing but a price consolidation of the overall trend move. It could either end the current trend or cause a reversal. The different price behavior pattern in the range creates many trading opportunities, which can be traded by all types of traders, depending on their risk appetite. Now let’s discuss some important trading strategies using support and resistance of ranges.

Strategy Using Technical Indicators

Using technical indicators to trade can aid your trading strategy. Especially while trading ranges, many indicators can be a part of your trading plan. Here, we have used the Stochastic Indicator as a tool to trade the ranges.

In the above image, the two lines represent the support and resistance of the range formed. When the price reaches the resistance at point 1, the Stochastic enters the overbought area, and the slowdown in momentum is the confirmation signal for a sell. The resistance pushes the price back to support (point 2), but this time the momentum is very strong, hence no entry. The stochastic also does not enter the oversold area clearly. Next time the price goes to resistance with greater momentum, and the Stochastic too does not give an entry signal as it is not in the overbought area. This means one shouldn’t be going short at this point.

Overall, there is only one risk-free trade available in the above chart, and that is at point 1 (short).

Strategy Recap

Firstly, we should be able to see the price at one of the extremes. When that happens, the indicator should show either be at overbought or oversold conditions. The momentum of the price should be an important factor that determines our entry. If we see reversal patterns, this could be the best entry with a good risk to reward ratio. Do not forget to place protective stops much below or above the support and resistance levels, respectively. This will always protect your trades from a false breakout.

When not to buy at support and sell at resistance in ranges

You must have probably heard traders saying that more time a level is tested, the stronger it becomes. This is not true in the case of our range break-out strategy. You need to start paying attention to the price patterns at these ends. If the price has made multiple touches, it could be getting ready for a breakout in the direction of the higher time frame.

The above chart is an example of such a scenario. It shows a range, and at point 1, you can see the strength in the candle as price pushes towards the resistance area. The next push makes the price to consolidate at the extreme. It appears to be a battle between the bulls and bears. It is also making higher lows as a part of the uptrend. Hence a breakout after this point is not surprising.

You don’t want to see the higher lows at the resistance extreme and lower highs at the support extreme.

The resistance could still work, and a reversal could happen, but this type of price action does not give much confidence for shorts. Only aggressive traders may find some entry in that consolidation, for a potential long. They can put a protective stop below the higher low that was formed before the accumulation.

We hope you find this strategy informative. Let us know if you have any questions in the comments below. Cheers!

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Forex Price-Action Strategies

Using Multiple Time Frames to Get Multiple Entries

We know using multiple time frames is an essential aspect of trading. Traders use the bigger time frame to find out the trend, breakout, vital support/resistance levels, and relatively smaller

We know using multiple time frames is an essential aspect of trading. Traders use the bigger time frame to find out the trend, breakout, vital support/resistance levels, and relatively smaller

We know using multiple time frames is an essential aspect of trading. Traders use the bigger time frame to find out the trend, breakout, vital support/resistance levels, and relatively smaller time frames to trigger an entry. In this lesson, we are going to learn how the trigger chart can be used as the analyzing chart to find out more entries.

This is a Daily chart, which is being used as the trigger chart. The weekly chart is used as the analyzing chart. It is a combination of Weekly-Daily. The price heads towards the North. Traders are to wait for the price to produce a bullish reversal candle.

A Spinning Top daily candle at a flipped support, the buyers have a lot to be optimistic here. One of the daily candles is to breach the daily resistance to go long on the pair. Let us draw the support and resistance on the chart to get a clearer picture.

This is how the chart looks like with support and resistance levels. If one of the daily candles breaches the resistance with good buying momentum, the daily traders are to trigger a long entry.

The next daily candle breaches the resistance. The buyer may take a long entry right after the breakout candle closes. An entry on the daily chart means that the trader shall leave the trade/chart for three to four trading days by setting Stop Loss and Take Profit.

However, if a trader uses the same daily chart as the trend-detecting chart and flips over to the H4 chart to find another entry, it surely would be more rewarding.

Let us flip over to the H4 chart.

Previously, the daily chart shows an upside breakout. Thus, the trend is bullish. The H4 chart shows that the price starts having consolidation. If the breakout level holds the H4 candles and makes an upside breakout, the H4 buyers are going to go long on the pair as well.

This is the H4 chart with the support and resistance of consolidation. The buyers must wait for an upside H4 breakout to go long on the pair. Let us proceed to the next chart.

Here it comes. An H4 bullish engulfing candle breaches the resistance. The H4 traders may want to trigger a long entry right after the candle closes.

The H4 chart shows the price may have consolidation again. The H4 buyers may want to cash in their profit. However, the entry, which is taken on the daily chart, traders are still to hold their positions until they get a bearish daily reversal candle.

At the end of the day, price action trading works very similarly on the Weekly, Daily, H4, and H1 chart. Today’s examples show that a Weekly-Daily combination offers an entry. After the daily breakout, the Daily-H4 combination offers an entry, as well. With a lot of practice, dedication, and hard work, a trader can trade both of them. This will surely beget more profit.

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Forex Price Action

Support and Resistance

Support and Resistance
One of the fundamentals of Technical Analysis is the theory and methodology of support and resistance. In a odd turn of events, some of the most advanced

Support and Resistance
One of the fundamentals of Technical Analysis is the theory and methodology of support and resistance. In a odd turn of events, some of the most advanced

Support and Resistance

One of the fundamentals of Technical Analysis is the theory and methodology of support and resistance. In a odd turn of events, some of the most advanced methods of identifying support and resistance are not only relatively unknown, but they are some of the original Technical Analysis theories. Some of those methods include identifying support and resistance according to naturally squared numbers, numbers related to an angular nature in Gann’s tools, harmonic ratios, pivots, Fibonacci levels, and other more esoteric methods. For this article, though, the focus is on identifying support and resistance based on prior traded price levels and ranges**.

 

What are Support and Resistance?

When you hear the word’s support and resistance, the definitions of those words may be the first thing that comes to your mind. Support indicates that something will assist or strengthen while resistance indicates rejection. In Technical Analysis, support means a level that is below the price, and resistance is above price.

The image above shows resistance as a red band and support as a green band. It’s important to understand that support and resistance on a candlestick chart should never be viewed as a static and exact price level. With a chart style that has such dynamic time and price levels, like Japanese candlesticks, support and resistance are an area or range of value. Determining the support and resistance levels requires a ‘zoomed’ out view of the chart. When you get a broader view of the past price action, you can see price levels where price has moved lower and then reversed higher (support) as well as price levels where price move higher and then reversed lower (resistance). The most important levels are those that show past resistance becoming support and vice-a-versa.

Prior Support turned into Future Resistance

 

Use another chart style to find support and resistance

Renko Chart

While it may seem simple to find support and resistance on a candlestick chart, there are some alternatives. The length of the wicks and body of candlesticks can vary and can add to the confusion. Using a Renko (above) chart simplifies the process of finding support and resistance by reducing the noise on the chart and providing less ambiguity when looking for highs and lows. Take note of how these resistance and support levels are drawn on a price-action-only chart. With a price action only chart, I don’t draw a value area like I would on a candlestick chart. But if you are not comfortable using a price-action-only chart and want to stick to a candlestick chart, then another trick that might help is to remove the wicks from the candlesticks. Look at the side by side comparison below.

Wicks VS No Wicks

Both charts display a weekly chart of the CADCHF pair. On the left, we have a regular candlestick chart with wicks – wicks that are all over the place. The chart on the right is the same as on the left, but with no wicks displayed. You can see how much more clear the tops and bottoms are on the right. This can make it a little easier to spot support and resistance levels.

 

** It is the view of this author that past support and resistance levels are inefficient for today’s markets. However, the method discussed in this article is part of a foundation of learning that can be applied to future price level analysis.

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Forex Market Analysis

June 19 – Global Stocks Slips on Risk off Sentiment – Trump Strikes

U.S. stocks slouched on Tuesday, with the Dow-Jones Industrial Average erasing its gains for the year, as markets were confused by a sharp escalation of the trade dispute between the

U.S. stocks slouched on Tuesday, with the Dow-Jones Industrial Average erasing its gains for the year, as markets were confused by a sharp escalation of the trade dispute between the

U.S. stocks slouched on Tuesday, with the Dow-Jones Industrial Average erasing its gains for the year, as markets were confused by a sharp escalation of the trade dispute between the United States and China. The US President, Donald Trump warned to impose a 10% tariff on $200 billion of Chinese goods and Beijing threatened it would retaliate.

S&P 500 – Daily Outlook

The U.S. stock market index SPX is trading at 2,664, down -15.25 points and -0.58%. The index is trading in the oversold zone and has already completed 50% retracement at 2,746. At the moment, SPX is likely to pull back to fill the early morning gap.



 

Support Resistance 
2761.79 2775.45
2757.58 2779.66
2750.75 2786.49
Key Trading Level: 2768.62

 

Nikkei – Daily Outlook

Japanese stocks plunged to 2-1/2-week lows on Tuesday and posted the biggest daily percentage decline in three months after Chinese stocks were sold piercingly amid intensifying global trade tussles.

Japan’s Nikkei dipped -401.85 points to trade at 22,278.48 on today. Most of the selling began in response to a risk-off sentiment. Technically, the Japanese index has come out of the asymmetric triangle pattern which supported Nikkei near 22,290. For now, the same level is working as a resistance. Whereas, the support is likely to prevail near 21,952.



Support Resistance 
22617.52 22774.72
22568.96 22823.28
22490.36 22901.88
Key Trading Level: 22696.12

That’s it for now, you are advised to monitor three speeches from the world central bankers. ECB President Draghi, BOJ’s Kuroda and Fed’s Chair Powell are due to participate in a panel discussion at the European Central Bank Forum on Central Banking, in Portugal on Wednesday at 13:30 (GMT). All the best!

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Forex Market Analysis

April 25 – Global Stocks Slips as Bond Yields Rises above 3%

S&P 500 – Daily Outlook

The U.S. stock market index SPX is trading at 2,631.25, down -4.25 points and -0.17%. Recalling our previous update, the index was

S&P 500 – Daily Outlook

The U.S. stock market index SPX is trading at 2,631.25, down -4.25 points and -0.17%. Recalling our previous update, the index was


S&P 500 – Daily Outlook

The U.S. stock market index SPX is trading at 2,631.25, down -4.25 points and -0.17%. Recalling our previous update, the index was trading in an overbought zone below 2,680 before falling down. It has already completed 61.8% retracement, and it’s likely to face support above 2,616.


Support     Resistance
2619.84     2670.44
2604.21     2686.07
2578.91     2711.37
Key Trading Level: 2645.14


Nikkei – Daily Outlook

Japan’s Nikkei dipped -62.80 points to trade at 22,215.32 on Wednesday. Most of the selling trend began in response to a weakness in the Wall Street soured risk sentiment. While the investors focused remained on rising bond yields.

Technically, the index has formed a double top pattern up at 22,350 which is likely to hold Nikkei below 22,350. The 50 periods moving average is suggesting a bullish bias with a significant support at 21,850.


Support     Resistance
22184.88      22303.38
22148.28      22339.98
22089.03     22399.23
Key Trading Level: 22244.13

That’s pretty much it for now. I hope you are ready for some action tomorrow in the wake of ECB policy decision. European Central Bank is due to release the monetary policy with wide expectations of no change in minimum bid rate. However, the press conference will be a key market mover. Don’t forget to watch it.

©Forex.Academy

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Forex Educational Library

Finding Trading Opportunities using Pivot Points

Pivot Points

Pivot Points (PP) are maybe the most straightforward and accessible trading approach or technique. The objective of this article is to show how to find trade opportunities using Pivot Points. We won’t make any explanation regarding the different Pivot Points trading strategy, i.e., Camarilla, Woodie, Fibonacci, or DeMark.

A Pivot Points framework is a mathematical method based on the previous N-period calculation, where N could be hourly, daily, weekly, monthly, or even, yearly. The most common timeframes to compute pivots are daily and weekly. In the short-term -Intraday trading-  traders use mostly daily pivots;  in the mid-long-term – Swing trading- they tend to use weekly or monthly pivots.

The Pivot Point calculation formula uses the High (H), Low (L) and Close (C) prices of the period:

Different supports and resistance levels are determined as follows:

THE STRATEGIES

First Strategy, Objective Levels:

  1. Consider taking “long” positions if the price is over the PP, and “short” positions in the opposite case.
  2. First target: R1, second target: R2. If price gains momentum, consider R3 as a final target. Another possibility is to trade from R1 to R2 (see figure 1 and 2).
  3. An order stop should be placed below the low of the Pivot Point.

In figure 1, we observe the trade in AUDUSD. In this case, the long position went from R1 to R2, and it was based upon the bullish bias that started on the 2nd of June’s session and still holding on the 6th of June. Figure 2 shows the result of the trade, closed at R2

Pivot Points AUDUSD

Figure 1: Trade from R1 to R2.

Source: Personal Collection.

AUDUSD TRADE

Figure 2: Result of the trade from R1 to R2

Source: Personal Collection.

 

Second Strategy, Potential Reversal Level:

This strategy is riskier because sometimes it could signal counter-trend trades. In this case, the idea is:

  1. Consider going “short” when the price reaches R2 or R3. Go long when the price goes down to S2 or S3 levels.
  2. If a trade is taken from R3, the first objective is R2, and the next target is R1. The “V” Pattern is not frequent, but it’s feasible to find it on volatile sessions (see figure 3).
  3. When trading a swing long at S3, SL (stop loss) should be placed slightly below the low of the day; or conversely, a swing short requires an SL above the daily high.

In figure 3, the GOLD (XAUUSD) opens the Asian and European session with a bullish bias, but when the price rises to R3, the volatility drives prices back to the PP of the day (blue line). Under this scenario, there is a definite possibility to enter a short position at the next candle open, once the price has confirmed the change in intraday trend.

GOLD (XAUUSD)

Figure 3: R3 as Potential Reversal Level.

Source: Personal Collection.

Third Strategy: The Power of Confluence.

In trading, a confluence is the convergence of two or more levels. A confluence of two or more pivot levels improves the possibility of them being a consistent support/resistance level compared to a single pivot level. In figure 4, we observe some confluences in GBPNZD; the reader should keep in mind that a confluence defines a zone, not an individual level, and price action must validate every zone or pivot level. Confluences also could be used with different timeframes, for example, weekly pivots with monthly pivots as shown in figure 5.

GBPNZD

Figure 4: Confluences.

Source: Personal Collection.

GBPNZD confluences mix

Figure 5: Confluences.

Source: Personal Collection.

A personal study based on the price movements between Daily Pivot Points levels applied to the Aussie, where the objective is to use the support/resistance levels as objectives or reversal zones, has revealed the results shown in figure 6. As we can see, the price movements draw a kind of Gaussian Bell shape, where most of the price movements are concentred between S1 and R1. Another observation is to consider R3 as a Potential Reversal Level.

 

RANGE OF PRICE MOVEMENT

Figure 6: Range of Movements between Pivot Points.

Source: Personal Collection.

Finally, I’ll tell you about my personal experience using daily pivot points. Some days, when a session moves within a narrow range, the price is moving between the daily pivot, and therefore between S1 and R1 (see figure 7). Then, it’s highly likely that the next session shows an explosive movement or a highly volatile session, maybe due to a relevant news or economic data release. In this case, the potential move expected could be from PP to R2 (or S2).

AUDUSD narrow range big move

Figure 7: Narrow Range Session and Volatile Session Movements.

Source: Personal Collection.

 

SUGGESTED READINGS

  • Duddella, S. (2007). Trade Chart Patterns Like The Pros.
  • Person, J. L. (2007). Candlestick and Pivot Point Trading Triggers: Setups for Stocks, Forex and Futures Markets. New Jersey: John Wiley & Sons, Inc.

©Forex.Academy