This is the example with that small retest.
Before entering the trade, you draw
the trend line to find out where your potential take profit will be and you see
that you would have to exit the trade before you even enter it which is of course
non sense. In addition, if that trend line would have been 10 pips lower and you
would have the chance to enter the trade, this was still not a good trade
because the risk would have been greater than the 10 pips reward. Stay out of
trades like this one. There will be plenty of opportunities, these kinds of trades
happen frequently. An alternative way to predetermine your take profit level
when the first method renders the trade unsatisfactory because of the high risk
and low reward is the following:
Connect with a trend line the last minor swing the pair made before the trend
line was broken to the downside (in the case of a downtrend) and the same
start of the retest move. Use whichever method gives you a better take profit
level as long as it is not exaggerated and you think there are extremely low
chances that the market will actually go to that level. If this method also does
not help you achieve a good risk-reward ratio then ignore the trade completely.
A second method that you can use to take advantage of the fact that every
support becomes a resistance and every resistance becomes a support level
after they have been broken it to use the same rules as with the method above,
but applying them to horizontal support and resistance zones this time.
However, with the diagonal support and resistance zones you have seen that
they are formed by connecting two or more distinct swings in the market. With
the horizontal levels, often times, you will not have a second distinct swing that
you can use to draw a horizontal line. Knowing this, you must leave the
candlestick chart and go to the same 4-hours chart, but a bar chart this time,
and zoomed out completely. Let me show you an example of this.
Please note that these horizontal levels come into existence just by drawing an
extended horizontal line at the level where the important swings in the market
are. If you want to trade the retest of these levels successfully, you have to
make sure initially that they hold great importance to the overall movements of
your particular forex pair. A way to make sure of this is by zooming out
completely the chart like in the example above to see the big picture of the
price action movements. This way, you can put your support or resistance level
into context, you can judge by looking at the surrounding price action if a swing
is indeed important or not. For example, in the chart above, after the first
horizontal level, there is a minor swing that price has made there. You can see
that I have not considered it as I think that this swing is smaller than the
preceding ones on this pair and it does not hold great significance to the overall
context of this pair. In addition to this, after the last horizontal level that I’ve
marked on the above chart there at the top, you can see that price goes down
for a while, only to come back up again and resume the uptrend. At this point in
time, if I was looking at the zoomed in candlestick chart instead of this chart, I
could have made the mistake to think that those swings the price makes on its
way up, are significant for the big picture on this pair when in fact, they hold no
significance as they are contained within the swing high that makes up the forth
horizontal resistance level on this chart. However, this is only visible when
looking at the zoomed out chart. Let us see this chart again to explain this.
After you identify these meaningful horizontal levels, you will have no problem
trading a retest of them, exactly like in the method above with the diagonal
support and resistance areas. Let us see an example:
As you can see, things are clear in this trade example. The moving average is
sloping up and the pair is trading above it. There is a clear uptrend. You zoom
out the chart and you find that this swing is actually quite significant by looking
at the big picture. You draw the extended horizontal line and you go back to the
candlestick zoomed in chart to wait for the retest to take place. The retest
does indeed happen right at the horizontal support level and soon enough, you
have a confirmation that the buyers have entered into the market again at this
level and they are most likely to push the price upwards and extend the
uptrend. The confirmation is represented by that big, green, bullish candle that
is also your signal candle to enter a buy order. The buy order is opened at the
close of the signal candle of course. Trade management (stop loss and take
profit) is made exactly like with the diagonal levels method.
This is about it.
I hope this helps you in your trading
In the end I would like to apologize if I sound a little to rigid in my explanations
and if there are any misspellings. English is not my first language. I am doing
the best I can.
If you find that this adds value to your trading please consider writing a
review of the book on Amazon. It does not have to be long, just a few
words to state your opinion about the trading system presented in order
to help other people make more informed decisions.
Please email me afterwards at damirlaurentiu@yahoo.com and you will
receive the PDF version of this e-book so that you can read it more easily
and print the contents on paper if you want.
50 Pips A Day Forex Strategy
Thank you very much and happy forex trading.
Also, if you are interested in complete forex trading price action systems that
respect to the letter every single piece of information found in this book,
therefore making them very solid trading systems that have the potential to
make thousands of pips per month, you can have a look at them by following
the links below:
Trade the Price Action
Trade the Momentum
Follow Price Action Trends
Day Trading Forex with Price Patterns
Day Trading Forex with S&R Zones
Forex Range Trading With Price Action
These trading systems are also available in PDF format if you want to be able
to print them and read them more easily. Here are the links :
Trade the Price Action
Trade the Momentum
Follow Price Action Trends
Day Trading Forex with Price Patterns
Day Trading Forex with S&R Zones
Forex Range Trading with Price Action
50 Pips a Day Forex Strategy
In addition, I have combined all of the above trading systems into one single
PDF book which is available here :
Forex Trading Systems
