In the last few weeks I’ve been posting my analysis on the EURUSD, and even when there are other currency pairs (I think) that have a clearer market condition, traders seems to be more interested in the EURUSD.
Do you have any idea why there are plenty of traders that just focus in the EURUSD?
I’d like to know that…
Anyway…
First things first…
Have you ever wondered whats the best way to determine the trend of the market?
There are plenty of tools, indicators, etc including:
You name it… Some of them are pretty subjective, and some other techniques are good.
But the question remains, among them all, which one is the best?
I don’t know about you, but I think trading is not a game, and I rather use something objective…
So to determine the best tool, I’d recommend you to take the following considerations. Make your strategy:
Once your strategy (or system) these two characteristics, you’ll have a system with a very good profit potential :)
Ok, so now, want to know what my take on this? What is as objective and simple as possible?
You guessed it.
Support and resistance levels plus price action.
In todays article, I’m going to show you how you can use support and resistance levels plus price action to make a chart talk to you, to show you how to convert a chart like this one:
Into actionable and reliable trading advice.
We all have traded a false breakouts, haven’t we? OK, not all, but most of us have.
If you are one of the few traders who still haven’t, you should do it at least once hehehe… just to get more experience (I’m kidding, even if you wanted, you never know what kind of surprises the market has for you).
Anyway, this is how it feels to trade a false Breakout
You draw an important resistance level (at least you think it is important)… you feel confident about this level and decide to set a buy stop order just above the resistance level.
What are your thoughts at this moment?
You cant wait to see the market triggering your order, because you know once it reaches the level, the market will explode, and you’ll get at least 50 pips in a few minutes, piece of cake (you close your eyes and picture this scenario).
You stay away from the chart for a few minutes, and once you see the market trading below your buy stop order, you switch over to a lower timeframe (as if it would give you control over what the market is doing). There you are, starting at the 1 min chart without blinking… and of course, a big smile on your face…
Everything looks good…
You are still positive about this trade, you review everything, you confirm every aspect of the plan and you arrive to the same conclusion: This is the trade of the week.
Since the market is so slow, I thought about writing about the tool that changed the way I trade, in fact, it changed the way I see the market for ever.
Are you ready?
The name of this tool is…
Support and Resistance levels
Did you think I was going to show you a new indicator?
Nah!
Long live Support and Resistance levels!
This is how I use support and resistance level (and you can use them too)
It’s always very important to spot important support and resistance levels.
But it is even more important to determine when the market has been rejected from those levels, or better yet, how to spot false breakouts so we don’t get trapped by them.
What are the most important concepts when it comes to forecast any financial market (Forex, stocks, futures, etc)? I think support and resistance levels, some traders might disagree with me, but the information we could get from these levels could actually help us trade with better results.
There are three things the market could do after hitting a support or resistance level:
C’mon, give the market a break! It’s not like the more lines you put on your charts, the more consistent you will get!
With all these lines and indicators it’s almost impossible to determine what the market is likely to do, I mean, I even had to put on my glasses on to see the candlesticks!
Yesterday I wrote an article about how to draw perfect support and resistance levels, take a look at it, I’m sure you’ll benefit at least from one of those rules.
3 Rules to Draw Perfect Support and Resistance levels
Let me know if you have any question.
Regards,
Raul Lopez
Forex Course
