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Resistance becomes Support

July 23rd, 2010
Resistance Becomes Support

Resistance Becomes Support

Trade Setup: Buy one pip above candle A, or candle B.

Reason:

  1. Price just broke above downtrend line.
  2. Price is at a previous high.
  3. It appears that Candle A is about to reverse and turn bearish. It has a low that is lower than the previous two candles. However, it turned around and closed near it’s high. Bears are thus trapped. We can enter one pip above candle A, as bulls have proven their strength and support has been found at the previous downtrend line.
  4. Alternatively, a more conservation trader may choose to buy above the high of candle B, which is a pin bar. Contrary to what is expected of a pinbar, price merely dipped below the low of candle B,  but eventually closed positively. Again, bears lost the battle and bulls proved their strength.

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Posted in Forex Trading, Reading Price Action

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Reading Price Action (Tape Reading)

July 21st, 2010

To read price action, one should not just memorize some bars formation (such as outside bar, double high lower close etc)… Rather, one needs to analyse the situation and figure out whether the bulls/bears are winning the race… In addition, look for traps where traders are likely to be tricked into a position on the wrong side….

Reading Price Action - The Analytical Approach

Reading Price Action - The Analytical Approach

In the chart above, one can figure out that price will collapse after candle B, for the following reasons:

  1. Prior to candle B, price showed weak attempts to rally above the upper channel line (red). Previous bull candles all have relatively long upper wicks.
  2. Imagine how candle B looks like when price is at the high of the candle… At that moment, price probably looked very bullish… Unsuspecting bulls may jump onto the trade, believing that price is due to rally.
  3. In fact, candle B is a nice bull trap… Its high is slightly above the high of candle A, and will thus trap bulls who buy on breakout.
  4. Candle C is another confirmation that price is weak. A nice price to sell will be one pip below the low of candle C.

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Posted in Forex Trading, Options Trading, Options Trading Education, Reading Price Action

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Newsprofiteer Meter

July 16th, 2010

This week.. I added two new tools to my trading arsenal…

The first is an expert advisor to help me calculate my lot size and enter two orders automatically.. one order that I close when it hits my target profit, the other I let it trail using a custom indicator that I wrote….

The second tool that I started using this week is a nice little program that shows the relative strength of 8 major currencies, programmed by Henry Liu… You can get it here http://www.currencystrengthmeter.com/

This program can work with any MT4 broker, and is a really neat way of telling at one glance which currency has a higher chance of rising (or falling) vs another currency…

I use it whenever my price action reading shortlists more than one possible pair for trading.. For instance, at 12:30pm (GMT) yesterday, I noticed that JPY is suddenly very strong… all three pairs (EURJPY, USDJPY, GBPJPY) formed a long bearish candle… I had to decide which pair, among the three, to trade… Using the currency strength meter, I can easily determine that EUR was strong, whereas USD was weak… Thus, trading USDJPY will be a much better choice than EURJPY… and indeed… USDJPY fell much more dramatically than EURJPY…

A really simple but useful application… and btw, did I mention that it’s free?  :-D

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Posted in Forex Trading, Others, Reading Price Action

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