I have tried them all and I do not find them reliable. So if you want a simple Forex strategy, keep reading. When price hits resistance we get an indecision candle forming green highlight. So, if you enter a long reversal from support, make sure that your target is before the next resistance area. By Viewing any material or using the information within this site you agree that this is general education material and you will not hold any person or entity responsible for loss or damages resulting from the content or general advice provided here by Learn To Trade The Market Pty Ltd, it's employees, directors or fellow members. Anyone wishing to invest should seek his or her own independent financial or professional advice.
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When price approaches a sell area large amounts of sell orders are triggered countering buy orders. This usually results in price stalling or even turning around completely for a reversal.
They place their entry orders at significant price levels. Significant levels come in many forms. The next time it approaches the level it pulls back again and then again two more times yellow highlights.
Because market movers place their buy orders at the 1. This is how markets work, buy and sell orders are grouped together in the same general area and when they are hit we see the impact on price.
There are a lot of indicators out there that claim to give you great support and resistance areas. Support and resistance placements still need to be done by a person. These are my support and resistance areas , but if you want to trade more pairs you will need to place them yourself.
I am going to break it down into a step by step process for you though. But first, we need to define some rules for support and resistance areas. Select a daily chart and zoom out until you see around one year of data. Identify the highest and lowest bounces in the last year and place an area at each. Remember, place your areas at the bodies, not the wicks and as these are yearly highs and lows placing them based on a single bounce is enough. Place support and resistance areas between the first two by connecting areas which have two or more bounces.
You will generally find that there are support and resistance areas on most charts. If you have more than 8 you probably placed too many. Well the standard approach to candlestick analysis is basic pattern recognition, which fails to work in real trading. I delve much deeper than that, I look at the story behind the candle and in this chapter I will show you how to do that too.
You can read up on the basics here if you need to. Each pattern has a set in stone definition and that is the only meaning it can have.
Actually, it is worse than useless. Thinking about candles as just patterns is counterproductive. It makes you a worse trader, it leads you to make massive mistakes. Giving a pattern a set definition leads to tunnel vision. When you see that specific pattern, you assume that something will happen.
All candlesticks need to be assessed based on the candlesticks around them, and many other factors. Normally people say that a spinning top means a reversal is imminent, which can be true. However, this same pattern can also mean that a continuation is imminent. It can mean that price is temporarily stalling. Every single candle on your chart is telling you a story. When you combine those candles together, you get the story of price.
Reading and understanding the story of price is vital in Forex. It is vital because it allows you to answer one of the most important questions in trading….
Being able to accurately answer this question is vital. If you are about to enter a short trade and you ask yourself. If you look at the three highlighted candles below, it is easy to conclude that sellers are in control of price. The candles all closed lower than they opened, they all created new lows beyond the previous candles low and they all had small upper wicks in comparison to the candle body.
The small upper wicks indicate that buyers were unable to push price up by much. It has a short upper wick, a small body, and a long lower wick. This is what I call an indecision candle. Indecision candles occur when neither buyers or sellers can gain and maintain control of price.
They are common, but if used in the right way, they can be very powerful. Take a look at this bullish trend yellow highlight , it is a strong trend, there are several bullish candles heading towards an area of resistance. The big bullish candles tell us that during the highlighted period buyers were in complete control of price. Large Upper Wick Blue Highlight A large upper wick shows that buyers tried to continue the bullish trend but failed.
Sellers took control of price and pushed it down. Small Bearish Body Green Highlight The small bearish body shows that sellers were able to close lower than the open. This is significant because in the three candles before this price consistently closed higher than open. This shows us that buyers are losing power.
Small Lower Wick Red Highlight The small lower wick shows us that sellers were not able to gain much ground either. This tells us that sellers are not strong enough to turn price around completely. However, they are strong enough to stall further buyer movement. All together this indecision candle forming right after strong bullish candles suggests that power has shifted from a decidedly bullish buyer market to an undecided market. While sellers are not in control, neither are buyers.
If you remember, in the previous chapter we talked about resistance being a sell area and support being a buy area. So the image above shows us three strong bullish candles heading into a resistance area. This tells us that the sell area is working. When price pushed into that area sell orders triggered and buyers could no longer continue up. Price action allows you to take many different types of trades, reversals, continuations, range, swing, breakout and scalp trades to name a few.
In my free Forex trading strategy I will focus on one type of setup, the easiest to spot and trade, reversal. Reversals are one of the strongest price action setups, and one of the easiest to trade. And because they occur so often, you can trade this setup exclusively and be a profitable trader.
In fact, for years Forex trading strategy focussed on reversals only. However, these days I trade more price action setups. In the example above, the preceding trend is a very strong bearish move, indicating that there are a lot of bears in the market and very few bulls.
If bulls were strong then price would not be trending down. The preceding trend shows us that bears sellers have strong control of price and they are pushing price down into a support area. The opposite applies for a bullish preceding trend which would show bulls buyers trending towards resistance, as you see below.
A preceding trend can be formed by as little as one candle. If the candle is strong and covers a lot of price distance, I categorise it as a preceding trend for the purposes of reversal trading.
Preceding trends are pretty simple. As long as you see a strong move heading into an area of support or resistance, you can consider it a preceding trend. A reversal setup will have one to three indecision candles. The indecision candles need to form on or near to the support and resistance area. If indecision does not form on or near to the area of support and resistance, it is not a valid reversal setup. An indecision candle in a bullish preceding trend indicates that buyers are possibly losing control, and sellers may be gaining control.
In a bearish preceding trend it indicates that sellers are losing control and buyers may be gaining control. However, an indecision candle does not indicate that price will reverse with any degree of certainty. You cannot take a trade based solely on indecision. The image below shows indecision forming between support and resistance. What about when a bullish preceding trend heads into an area of resistance sell area or a bearish trend into support buy area and indecision forms?
But we cannot enter just yet, we need confirmation, which comes in at part three of a reversal setup. The reversal trend is the third and most important part of a reversal setup.
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Just understand you have to increase your price action skills and ability to read price action context before trading lower time frames. For other traders it does, so the key is finding what works for you. Also make sure to check out our most recent article on Price Action Trading. I'm a verified profitable trader and trading mentor. As a professional trader, I specialize in trading Price Action and the Ichimoku cloud. As a trading mentor, I have one goal: Want to improve your trading edge and mindset?
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