My Millionaire Goal

Trading with Horizontal Support/Resistance

Trade Setup: Sell one pip below candle A.

Reason for trade:

1. Green line is a resistance that became support
2. Price made a weak attempt to reverse upwards prior to candle A.
3. Candle A is a bearish outside bar, with a close near the low, indicating the strength of the bears.

Bull Trap

Candle A in the chart above is an excellent bull trap.

Firstly, candle A occurred near a bullish trendline and it seemed like price found support at the trendline. In addition, candle A is an outside bar and a strong bull candle. All these signals suggest that price might bounce off support and continue to rally.

However, that was not the case. Price moved up a bit, but then proceeded to fall.

One of the biggest clue to suggest that price will NOT rally and that candle A is merely a bull trap is the fact that previously, price failed to find support at the brown trendline. The brown trendline acted as a resistance initially. After price broke above the brown trendline, the line should change it’s role and function as a support. However, this did not happen in the chart above. Traders who were alert will probably detect that something is amiss, and will not be tricked into buying above candle A.

The Zigzag Pattern

The chart above shows a common pattern that leads to a trend continuation. I don’t know what is the actual name for this pattern, so I’ll just call it the zigzag pattern. This pattern starts with a strong uptrend, followed by a reversal that is significantly less steep. When the green downtrend line is breached, the previous uptrend resumes.

The pattern is stronger when it is combined with other price action. If we zoom into the chart above, we can see that a cup-with-handle pattern formed before the downtrend line is breached (refer to chart below). The shallow handle is further proof that bears were not strong enough to push the price down.

Cup with Handle