Learn To Trade The FX Market

Horizontal vs Trend Lines

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" style="margin-top: 122px;" width="503" /> 
 
Hello Forex Traders, 
What is the difference between horizontal lines and trend lines? That was a question I recently received from a <a href="http://www.winnersedgetrading.com/trading-room-page/" target="_blank">member of our trading room</a>. It’s an excellent question and today’s main article topic in fact. 
ANGLE 
The first but very obvious difference is the angle of the lines. It 
is however important to state the obvious as to reinforce the concept. 
1)      A horizontal line has no angle 
2)      A trend line has an angle which is above 0, but below 90 
3)      A vertical line has a 90 degree angle 
<a href="http://www.winnersedgetrading.com/wp-content/uploads/2013/11/15-11-2013-tl-1.jpg"><img alt="15- 11- 2013 tl 1" height="150" src="http://www.winnersedgetrading.com/wp-content/uploads/2013/11/15-11-2013-tl-1-300x150.jpg" width="300" /></a> 
The angle of the trend line can vary from anything just above 0 to 
89.99 degrees which is close to a vertical line. But in practical real 
life situations trend lines never have 89.99 degrees of course. Anything
 from 5 to 60 is most common. 
The vertical line has no particular usage in trending, unless used on
 the charts for remembering a particular time or part of price action. 
For the remainder of the article we will therefore focus on the trend 
line and horizontal line. 
VALIDITY 
The validity is another difference between a trend line and a 
horizontal line. A horizontal line could be placed at any support or 
resistance level that a Forex trader assesses as important. A trend 
line, however, must have multiple touches to be considered a valid trend line. 
Here is a summary of trend lines and their number of hits: 
1)      At the minimum a trend lines must have 2 hits / touches, otherwise the trend line has no value. 
2)      A trend line with 3 hits or more is the most valuable as the 3rd hit gives the confirmation of the market respecting the trend line. 
3)      A trend line with 3 hits or more could also be considered the base of a trend channel. 
Horizontal lines also have more importance once price action respects
 that level multiple times but it is not a prerequisite for validity. A 
horizontal line that has one price point is a support or resistance. A 
horizontal line that has multiple points is a potentially a stronger 
support or resistance and could be the top or bottom of a range. 
LINE TRADING 
In theory, both horizontal lines and trend lines can be used <a href="http://www.winnersedgetrading.com/trading-breakouts-real-or-false/" target="_blank">for trading break outs.</a>
 Trading break outs has big advantages – primarily because traders avoid
 lots of moments where price action is indecisive. Price action does 
tend to consolidate the majority of the time and trading break outs 
gives the advantage of entering when the market has a higher change of 
moving in your favor. 
One of the most 
difficult elements of trading is the psychological perspective: let’s 
face it, trading is mental game and implementing one’s trading plan with
 confidence is crucial. Avoiding long drawn out sideways chop certainly 
helps that psychological battle. But it also allows for optimal 
allocation of trading capital. Forex trader who do not have their 
trading capital “stuck” in chop / sideways movement keep their ability 
to enter the market with the break out opportunity of their choice, 
whereas other might have hit their maximum risk levels. 
There is a difference when trading trend lines or horizontal lines. 
The angle is the primary focus point, because there is also a difference
 between trading shallow trend lines, regular trend lines and steep 
trend lines. 
1)      Steep trend lines (more than 40 degrees): price action is 
moving with a lot of momentum, otherwise the trend line could never be 
that steep. A break of this line indicates that this big momentum is 
stopping, but usually it’s only temporarily. Price usually corrects the 
angle of the trend before it continues with the trend. In general, these
 trend lines are great as a trailing stop and are an excellent method of
 taking a profit upon break. 
Some steeper trend line breaks do see a reversal. And trading those 
to the opposite side are profitable. This is primarily happening when a 4
 hour chart is showing a trend and the smaller time frames are moving in
 a steep correction. A break of that steeper counter trend line has a 
higher chance of succeeding. 
<a href="http://www.winnersedgetrading.com/wp-content/uploads/2013/11/15-11-2013-tl-3.jpg"><img alt="15- 11- 2013 tl 3" height="148" src="http://www.winnersedgetrading.com/wp-content/uploads/2013/11/15-11-2013-tl-3-300x148.jpg" width="300" /></a> 
2)      Regular trend lines (10-40 degrees): price action is moving 
at a well balanced angle but mostly weaker as well. The market is <a href="http://www.winnersedgetrading.com/simple-forex-trading-impulsive-moves/" target="_blank">showing exhaustion</a>
 to one side by price is moving correctively in these cases (as the 
angle suggests). A break of the trend line indicates the end of that 
corrective movement. 
These trend lines, however, still have plenty of space towards the 
next bottom or top (support or resistance) and that is the primary 
reason why the breakout is often less volatile than trend lines with 
shallow angle or horizontal trend lines. All break outs tend to have 
their ups and downs before a 1 directional price action occurs but 
regular trend lines are the most “stable” in their break outs. 
The “stable” break out will lead a good run in one direction before 
the currency bottoms or tops out on the lower time frames. Therefore 
using a tigher stop loss has a higher chance of succeeding here than in 
other examples. At that moment there is a good chance of a hook back or 
pullback to the price level of the broken trend line. But only after a 
good size price moment has been made. Both the break out (strike) and 
pullback (boomerang) are trade setups which the <a href="http://www.winnersedgetrading.com/trading-room-page/" target="_blank">Winners Edge Trading room </a>employs. 
3)      Shallow trend lines (0-10 degrees): price action is moving at
 a weak angle. The market can hardly move away from the top or bottom. 
The correction is very timid. A break of the trend line also indicates 
the end of that corrective movement but there is one crucial difference:
 tops and bottoms (support and resistance) are close by and this could 
make the break out short lived before price action respects those 
levels. 
In our trading room we have a simple solution of making sure that we have <a href="http://www.winnersedgetrading.com/money-management-in-forex-more-than-just-trading/" target="_blank">an appropriate reward to risk </a>when
 tackling these trades. This helps take away the subjectivity from the 
decisions. Remember, always keep your approach to trading as simple as 
can be. 
Due to this lack of space to the next support or resistance, price 
action often moves choppier than usual. Forex traders are not willing to
 take a trade right in front of these levels so many up and downs are 
usually accompanied during this environment. Our <a href="http://www.winnersedgetrading.com/trading-room-page/" target="_blank">trading room also</a> has guidelines on how the break out should proceed. 
4)      Horizontal lines (0 degree): price action has broken the top 
or bottom, which means that 1 support or resistance is out of the way. 
However, there are cases when even though 1 support and resistance has 
been broken, there is another one right above/below it. That could cause
 the unexpected and sudden (opposite) turnaround. 
<a href="http://www.winnersedgetrading.com/wp-content/uploads/2013/11/15-11-2013-tl-2.jpg"><img alt="15- 11- 2013 tl 2" height="149" src="http://www.winnersedgetrading.com/wp-content/uploads/2013/11/15-11-2013-tl-2-300x149.jpg" width="300" /></a> 
Often enough the break of horizontal level is accompanied with lots 
of volatility and sudden moves up and down. The break out will see some 
follow through but often enough this potential is limited as price 
action wants to hook back to the broken horizontal level. Very 
frequently the currency actually makes a retracement after this break 
out. This retracement could even turn into a full fledge reversal. With 
horizontal levels it is safer to trade the 2nd break out or continuation trade setup, which in fact occurs when a break out and pullback have already occurred. 
Do you recognize it yourself when trading? What do you think of trend lines and their angle? Let us know down below! 
Have a great weekend and thanks for sharing the article!!</div>

Horizontal vs Trend Lines

Hello Forex Traders, What is the difference between horizontal lines and trend lines? That was a question I recently received from a member of our trading room. It’s an excellent question and today…

18 Nov 2014

Horizonal Levels - Forex Trading Strategy

<div dir="ltr" style="text-align: left;" trbidi="on">
Horizontal Levels is one of the simplest 
ideas in Forex trading and yet a very useful Forex trading strategy. 
Horizontal levels are fundamental in most <a href="http://www.fxmarketleaders.com/learnforex/forextradingstrategies">Forex trading strategies</a>
 and aid us in analyzing charts but can also be used on their own as a 
strategy rather than a tool to use for other strategies. Even by just 
watching the most obvious price changes and drawing their horizontal 
levels we can make successful trades and by fully understanding the 
horizontal levels of more complex charts we can spot trends that we 
would have otherwise missed.

 
 
The importance of Horizontal Levels

Most traders consider horizontal 
levels to be just as important as the price action, which is the core to
 Forex trading. Analyzing the combination of the price change and the 
horizontal levels can easily lead us to understanding the trend and 
predicting where the market will go next. Although horizontal levels is a
 very basic Forex trading strategy, many famous and experienced traders 
such as Jesse Livermore, Warren Buffett, and George Soros have confirmed
 that they use it as a basis to many of their strategies.

Horizontal levels help us spot key 
areas on a chart where a change in trend is likely to occur. This can 
help us when deciding where to place a stop, or when we want to enter a 
trade but don’t know the right time to do so. Precise timing can be very
 crucial in many Forex trading strategies and a careful analysis of the 
horizontal levels can help us find the correct timing and place a good 
trade. Keep in mind that horizontal levels may be the foundation of many
 strategies but on its own it is usually not enough and must be used in 
combination with other Forex trading strategies.

Horizontal Levels and ‘Swing Points’

The best way to use horizontal levels 
to our advantage is by analyzing the swing points. Swing points are 
points where the trend changes and by marking horizontal levels at these
 points we can find prices where there is likely to be a change in 
trend. The illustration below shows very clearly how we can use 
horizontal levels to our advantage.

Notice how the swing points have a tendency of repeating themselves. <a href="http://www.fxmarketleaders.com/learnforex/forextradingstrategies/supportandresistancelevels">Support levels can turn in resistance levels</a>
 and vice versa. By marking the horizontal levels on the chart we can 
predict when the next swing point will occur and enter/exit a trade at 
the perfect timing. The blue circles on the chart are the points that we
 should have been able to notice in advanced. These are the most obvious
 entry points and by noticing them we could have given an edge to any 
strategy that we chose to use.

<div style="text-align: center;">
<img alt="horizonal levels strategy" src="http://www.fxmarketleaders.com/portals/0/horizonal%20levels.png" style="height: 200px; line-height: 1.5; margin-top: 3px; text-align: left; width: 420px;" /> 
 
 
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 <td style="width: 55px;">
 <div style="text-align: left;">
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Horizontal Levels and Ranging Markets

Horizontal levels are also very useful
 in range-bound markets. Range-bound markets are markets where the price
 has very clear upper and lower boundaries that the price doesn’t cross.
 By watching the price as it approaches one of the boundaries we can 
predict with great accuracy where the price will trend next. As always, 
the price can be unpredictable and might break the boundary just as we 
decide to enter a trade, but overall this strategy is very reliable and 
safe. The illustration below shows an example of a range-bound market:

Notice how the price jumps back and 
forth between two very obvious boundaries. By marking these boundaries 
as our horizontal levels we can use them to our advantage. Wait for the 
price to approach one of the boundaries to make a move. As we know that 
the price is not likely to cross the horizontal level at the boundary, 
we can enter a trade expecting the trend to switch and the price to go 
back away from the horizontal level. If the price was approaching the 
upper boundary, expect the trend to be bearish and the price to go down 
and if the price was approaching the lower boundary expect a bullish 
trend and an up-going price change. Risk and reward levels are also very
 easy to choose in this kind of market. Risk level should be just above 
or below the boundary that you entered the trade from and reward level 
should be at the opposite boundary of the range-bound market.

Remember! these
 are only three Forex trading strategies which are based on technical 
analysis of the charts. There are dozens of unique strategies out there.
 Some are long term and some are short term. Some involve great risk 
while others are almost risk free. Some are based on a deep 
understanding of current economical events while others are based on a 
technical analysis of the market and trends. The list of diversity goes 
on and on.

* We will occasionally add more of our analyst’s and trader’s favorite strategies so check back if you want to learn more.

</div>

Horizonal Levels - Forex Trading Strategy

Horizontal Levels is one of the simplest ideas in Forex trading and yet a very useful Forex trading strategy. Horizontal levels are fundamental in most Forex trading strategies and aid us in analy…

18 Nov 2014

Forex Trading Strategies & Systems Reviews

<div dir="ltr" style="text-align: left;" trbidi="on">
<header class="entry-header">
 <h1 class="entry-title">
Horizontal Line Forex Trading Strategy</h1>
<div class="comments-link">
 <a href="http://www.forextechniques.com/forex-trading-strategies/horizontal-line-forex-trading-strategy.html#respond" title="Comment on Horizontal Line Forex Trading Strategy">Leave a reply</a> </div>
</header>

<div class="entry-content">
 Learning how to use horizontal lines effectively in the forex 
market is an essential aspect of becoming a great technical chart 
trader, this forex trading technique is more commonly known as support 
and resistance trading. There a few different instances in which you can
 make great use of the horizontal line forex trading strategy. We will 
discuss each of these with chart examples in this article: 
 
• Trading bounces from horizontal levels

Strong horizontal support or resistance areas provide high 
probability entry or exit areas for you to keep an eye on when trading 
the forex market. Almost any candlestick reversal bar or other price 
pattern, is significantly strengthened if it occurs at a strong 
horizontal line that has proved to be a significant support or 
resistance area in the past.

In the chart example below we are looking at the daily chart of gold.
 Notice the obvious horizontal level that formed in this market, the 
horizontal line is valid because it was tested two times before the 
signal occurred, indicating it was a significant level. Finally, we can 
see that a well formed candlestick reversal setup, or pin bar, formed 
that showed clear rejection of this horizontal support area. One other 
note on trading bounces of horizontal lines like this; often times these
 horizontal lines will switch from support to resistance or vice versa, 
we can see evidence of this in the chart below as well.

• Horizontal line trading ranges

Another excellent way to implement horizontal lines into your <a href="http://www.forextechniques.com/">forex trading techniques</a>
 is by trading within trading ranges. Markets consolidate often, 
therefore, it is essential that you know how to make use of this 
consolidation by learning to trade off of horizontal support or 
resistance areas that form when a market consolidates.

In the chart example below we are looking at the daily EURJPY, which 
entered into a long trading range earlier this year between about 
138.50/139.00 and 127.00. These areas would have been very high 
probability horizontal line areas to watch for trading signals to form 
at. Since markets consolidate just as much, if not more, than they 
trend, understanding the forex strategy of using horizontal lines to 
trade within trading ranges is very important to your overall forex 
trading arsenal.

• Breakouts of horizontal lines

One other excellent usage of horizontal line support or resistance 
levels is to use them to trade breakouts. The forex market is notorious 
for giving rise to some very powerful breakout moves. Breakouts occur 
following a period of consolidation, all markets eventually breakout of 
consolidation, it is a matter of timing that is the key to determining 
whether or not you trade breakouts successfully.

In order to compensate for the many “false-breakouts” that often occur within the forex market, there is a very good <a href="http://www.forextechniques.com/category/forex-trading-strategies">forex trading strategy</a>
 you can use when trading breakouts. First, wait for the initial 
breakout to occur but do not trade it, instead wait and see what 
happens, if the market genuinely breaks out it will close outside of its
 recent range. Next, wait for a pullback to the breakout level and then 
enter in the direction of the initial breakout, this way you can make 
sure that you are at least trading from a confluent level and have 
avoided the dreaded “false breakout”.

In the chart example below we are looking at the AUDJPY 4hr chart, we
 can see a period of consolidation and then a breakout to the downside 
of this consolidation. Notice that there were actually 2 re-tests of the
 horizontal line support level where the initial breakout occurred, both
 of these re-tests were extremely high-probability entry scenarios.

For more information on forex trading strategies check out this <a href="http://www.forextechniques.com/forex-trading-strategies-introduction-course.html">free forex trading strategies</a> introduction course.

</div>
</div>

Forex Trading Strategies & Systems Reviews

Horizontal Line Forex Trading Strategy Leave a reply Learning how to use horizontal lines effectively in the forex market is an essential aspect of becoming a great techni…

18 Nov 2014

Trading Support and Resistance Key Levels

<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="content">
 Today’s article will focus on trading support and resistance key
 levels as this seems to challenge many developing traders. Learning how
 to trade <a href="http://2ndskiesforex.com/strategies-for-forex-trading/forex-articles/the-best-support-and-resistance-levels-part-1/" target="_blank">support and resistance key levels</a> is critical, because in essence, this is where;

a) you will be placing your stops and targets, and

b) this is where the institutional traders are getting in

In reality, support and resistance levels are like ‘doors’ or 
‘walls’, either they will be open or closed – either they will break or 
they will hold shut. Your success will be in determining when they will 
hold, and when they will break.

Thus, it becomes essential to learn how to read key levels so you can
 have a well defended stop, a highly efficient entry, and also have 
proper timing.  In this article, I will cover two powerful tips for 
finding these key support and resistance levels.

#1: Minimum of Two Touches Before you can consider a level to be used as support or resistance, you will want a minimum of two touches.

Why?

Imagine you are in a strong downtrend, and the pair rejects off a particular price heavily – perhaps via a long tailed <a href="http://2ndskiesforex.com/strategies-for-forex-trading/forex-articles/pinbar-trading-price-action-forex-trading-with-pinbars/" target="_blank">pin bar</a>.
  You have to consider, with trend traders are just going to see this as
 a test. The bears know there are buyers off the price where the bottom 
of the pin bar formed, but they are not going to give up control of the 
trend just from a simple pin bar.

They are going to retest this level to see if the buyers there are 
strong enough.  If they break it, then the trend and profits will 
continue.  If not, then they will take profit, but it’s unlikely a 
reversal will start immediately.  A good example of this is in the chart
 below.

GBPUSD Daily Chart <a href="http://cdn.2ndskiesforex.com/wp-content/uploads/2013/03/pin-bars-support-and-resistance-key-levels-price-action-2ndskiesforex.jpg"><img alt="pin bars support and resistance key levels price action 2ndskiesforex.com" class="alignnone size-full wp-image-7941" height="516" src="http://cdn.2ndskiesforex.com/wp-content/uploads/2013/03/pin-bars-support-and-resistance-key-levels-price-action-2ndskiesforex.jpg" width="800" /></a>

Looking at the chart above, we can see the pair is in a strong 
downtrend.  In the middle of the chart at A, it forms a counter-trend 
pin bar. Now although the pin bar body is at the prior support area, the
 tail is way below, and its the bottom of the tail where the buyers 
entered in, not at the support area.

Thus, the bulls at the support area were likely stopped out when 
price dipped 100 pips below, & the rejection from the pin bar 
occurred at a place with no two touches. So this would not be a pin bar 
to buy as you can see failed whether or not you used a 50% retrace entry (which can be quite inefficient).

You will also see the same later on with the pin bar at B, which also
 had a low at no known support area or formed a second touch.  This also
 would have been a loser.

Now notice the pin bar at C which is with trend. You will notice the 
pin bar formed a second touch off the level two candles back.  This 
would have been a good <a href="http://2ndskiesforex.com/strategies-for-forex-trading/forex-articles/price-action-trading-explained/" target="_blank">price action</a>
 setup to get in because the second rejection would have confirmed the 
level.  And you will notice, it turned out to be a winner.

So the main takeaway from here is look for the two touches, because 
with a one touch, the with trend traders will re-attack that level. And 
it should be noted there is a far more efficient entry than the 50% retrace entry
 which I will discuss in next week’s article, but keep in mind, after 
long tailed pin bars, you don’t have to worry about missing the entry.

Why?

Because if it is going to reverse, the greater probability is that a re-balancing, or ‘re-distribution‘
 of the order flow will begin.  This mostly likely will creating a 
range, or a corrective pullback.  This is also why when you have an <a href="http://2ndskiesforex.com/strategies-for-forex-trading/forex-articles/impulsive-and-corrective-price-action/" target="_blank">impulsive price action</a> move, followed by a corrective price action move, it is more often followed by another impulsive price action move.

This is also the reason why an impulsive price action move is rarely 
followed by a counter-trend impulsive price action move. From an order 
flow perspective, this is because if the sellers are heavily in control,
 the buyers will have to overwhelm the sellers, and this requires a lot 
more money and orders then the current bears in control.  This is the 
reason why V-bottoms are more rare than common.

#2: Trading With Trend Increases the Probabilities You might have noticed with the chart above, that trading with trend was more powerful than trading counter-trend. As a whole, <a href="http://2ndskiesforex.com/forex-videos/price-action-forex-trading-trading-counter-trend-price-action-setups/" target="_blank">counter-trend trades</a>
 are a lesser probability trade, so they take more skill, experience, 
and precision. This is simply because you are trading against the 
majority of the order flow, so the odds are already stacked against you.
  For those still having trouble getting consistency, I’d recommend 
trading with trend as much as possible.

Now if you are in a range, then there is no dominant trend, so 
trading reversal type plays are suggested, particularly at the tops and 
bottoms of the range. But when a strong trend is in play like the one 
above, you will find greater profit potential and accuracy trading with 
trend instead of counter trend.

This also holds true for trading support and resistance levels.

Why?

In a strong trend, the larger players are just looking for key levels
 as areas they can get in with trend.  This is traditionally known as a <a href="http://2ndskiesforex.com/forex-videos/forex-price-action-intraday-breakout-pullback-setup/" target="_blank">breakout pullback setup</a>, and generally does not need two touches off the level to confirm its effectiveness.

Why?

Because likely, in a trend, there will be a support or resistance 
level that is already being challenged, which would confirm there are 
buyers or sellers at the level trying to defend it, while the other side
 is attacking it. Once it breaks, the with trend traders often look for a
 pullback towards this level to get back in with trend. A great example 
of this is in the chart below.

AUDJPY With Trend Setups 4hr Chart <a href="http://cdn.2ndskiesforex.com/wp-content/uploads/2013/03/breakout-pullback-setup-trading-with-trend-price-action-chris-capre-2ndskiesforex.jpg"><img alt="breakout pullback setup trading with trend price action chris capre 2ndskiesforex.com" class="alignnone size-full wp-image-7947" height="486" src="http://cdn.2ndskiesforex.com/wp-content/uploads/2013/03/breakout-pullback-setup-trading-with-trend-price-action-chris-capre-2ndskiesforex.jpg" width="800" /></a>

Using the chart above, starting with the bottom left, price climbs 
consistently, gapping up, but then forming a resistance area at A. After
 a brief pullback, we can see price breaks through forming a new SH
 (swing high).  The market then pulls back to the level at A, and at A’,
 forms an aggressive engulfing bar which starts the next up leg for over
 400+ pips before forming a pullback.

The pullback at B which forms the next resistance high, dips just 
below the 20ema and forms a with trend pin bar. This marks the new 
impulsive leg up towards 95.00. Then price pulls back towards the level 
at B, and at B’, double bottoms (two touches) and starts another leg up and a nice with trend entry.

After a marginal break higher, price pulls back and forms another 
with trend pin bar below the 20ema, which starts another up leg towards a
 resistance at C. Sellers enter at C, and after a short pullback, break 
above it, with a brief consolidation at C’, offering a great breakout 
pullback setup to get in with trend.

Keep in mind, in all of these with trend pullbacks, the market pulled
 back towards the levle that it hat the strongest rejection from at A, B
 and C. The strong rejections at those levels are counter-trend players,
 trying to stop the trend. But when the bears tried to get past the last
 major resistance, now turned support (forming a <a href="http://2ndskiesforex.com/forex-videos/price-action-chris-capre-advanced-price-action-trading-strategies/" target="_blank">role reversal level</a>), the bulls used this as an opportunity to get long.

Yet in almost every case where the market formed a resistance, when 
the market attacked that level again, the sellers failed to hold the 
level. This is because they were going against the major order flow, 
which highlights how much easier it is to find key support and 
resistance levels that work when you are trading with trend, and not 
counter trend. So hopefully this highlights the difference.

In Summary 
Finding key levels, and major support or resistance levels is not some 
Da Vinci code type endeavor. Two key things which really help this are 
using the two touch rule, along with trading more with trend than 
counter trend. Of course, there are other <a href="http://2ndskiesforex.com/strategies-for-forex-trading/forex-articles/2-key-clues-to-understanding-support-and-resistance-levels/" target="_blank">key clues to understanding support and resistance</a>,
 but if you can employ these two techniques, they will greatly enhance 
your ability to find key levels, and make highly effective trades around
 them.

</div>
</div>

Trading Support and Resistance Key Levels

Today’s article will focus on trading support and resistance key levels as this seems to challenge many developing traders. Learning how to trade support and resistance key levels is critical,…

18 Nov 2014

Using Support and Resistance in Forex Trading

<div dir="ltr" style="text-align: left;" trbidi="on">
Many people disregard technical analysis as a hoax, and in some cases
 it can very well be. However, in Forex, technical analysis is a vital 
trading tool, as markets are “blind.” What’s a blind market? In a 
market where you cannot see the ‘tape’ and/or, order size, the market is
 considered ‘blind.’ In essence, you cannot see the order flow, or 
those actually making market, to see where the buying and selling is 
coming from.

When trading equities, many traders utilize Level II, or Level III 
quotes, which allow them to see order size coming from Electronic 
Communication Networks (ECNs – Think Island and Instinet). ECNs are 
electronic systems that match buying and selling orders anonymously, 
adding liquidity to equity markets. What’s more, on Level II and III 
quotes, traders can see other market makers (and their size) on both on 
the inside and outside bid and offer. Really, Level II and III allow 
traders to see the liquidity of the market. However, in Forex, retail 
traders do not have the ability to see bid and offer size, or who is 
willing to buy and sell.

<blockquote>
<a href="http://store.tradingmarkets.com/ebooks/stocks/bollinger-bands-guidebook.html?utm_source=supportresistanceforex&utm_medium=Article">Click here</a>
 to learn how to utilize Bollinger Bands with a quantified, structured 
approach to increase your trading edges and secure greater gains with Trading with Bollinger Bands® – A Quantified Guide.</blockquote>
Moreover, in equities trading, the tape displays all transactions 
that occur, which can clue traders into order flow, by being able to see
 the actual prints roll by.

Retail traders (you and me!) can not see any of the above in Forex, 
and thus, are “blind” to order flow and size of buyers and sellers. 
When you submit an order in Forex, your broker will either pass the 
trade through to the market, or actually take the other side… Thus, you 
are blind to the market, other than the last print shown and the charts 
you are watching. All of this is exactly why technical analysis is so 
vital in Forex, as outside of economic and currency related news (and 
analysis), the really only other indicators traders have is technical 
analysis. In essence, Forex is one of the purest markets for technical 
analysis, because it is indeed, blind.

Support and Resistance

When utilizing technical analysis, it’s important to remember that 
most all technical indicators are lagging events – meaning they are 
simply conveying information about an event that has already occurred. 
However, through technical analysis, we hope to achieve two things:

<ol>
<li>Understand what the broader investing public is thinking. </li>
<li>Find reliable indicators that not only show us what has transpired, 
but give us some insight to what could take place in the future. </li>
</ol>
When we utilize technical analysis, the indicators become “self 
fulfilling prophecies”, meaning that enough people are watching – and 
acting on – the same information, so as to make an event occur.

Two key concepts in technical analysis are support and resistance:

Support: A certain price level that shows significant ability to hold the currency above.
 Support is generally thought of as a horizontal line drawn on a chart 
that coincides with multiple historical highs and lows, or significant 
price level, like a whole number.

Resistance: A certain price level that shows significant ability to hold the currency below.
 Support is generally thought of as a horizontal line drawn on a chart 
that coincides with multiple historical highs and lows, or significant 
price level, like a whole number.

There are other types of support and resistance, like ascending and descending, though we will not cover them here.

In Practice

Now that we have an understanding of why technical analysis is 
important, and what support and resistance are, lets apply the two to a 
chart and trading scenario.

The below daily chart shows recent trading of the pound versus yen. 
The pair had come off a decline, and began trading laterally for just 
over two months. During this time, traders would have been able to draw
 support and resistance lines, based on the highs and lows of the 
lateral trend… You can see how easy it is to draw support and 
resistance lines, as the chart visually shows us where the highs and 
lows are. Unless you are applying some sort of quant-related system to 
support and resistance, there’s really no need for any math. Support 
and resistance are really visual indications of market psychology. 
Through support and resistance we can see where the market may become 
jittery upon rising, or falling.

Traders attempting to find a longer-term hold, would have sought a 
break above or below support and resistance before taking positions, 
while those with shorter time frames (swing and intraday traders), would
 have most likely used the support and resistance lines as contrarian 
indicators (more on this in a moment.)

As the below chart shows, support and resistance were revealed as the
 pair traded laterally for over 60-days. Then, a technical event 
occurred that would have brought longer-term traders (investors, really)
 in off the fence. The pair broke below the 2.21 area, which was a 
breach of support. What’s more, support coincided with the 2.21 whole 
number (actual support was in the 2.2130 region). Whole numbers are 
generally harder to penetrate, mostly just in terms of market-psychology
 though.

When the GBP/JPY pair fell below two month support, traders who were 
long, most likely began selling, in an effort to cut losses. What’s 
more, those who did not have positions, likely began to pile into the 
pair short, adding supplemental pressure to the pound. In the end, 
short-side traders most likely profited handsomely.

(FYI, for those using support and resistance for stops, orders should
 be placed slightly below, or above support and resistance, 
respectively. It’s important to force the pair to actually breach 
support and resistance, before closing positions, otherwise we run the 
risk of being unnecessarily stopped out of our positions.)

Intraday and Swing Trader Contrarians

Intraday and swing traders can use support and resistance in the 
manor described in the above section, but can also use support and 
resistance as contrarian indicators as well. (It’s important to note 
that long-term traders can also use support and resistance as contrarian
 indicators, but perhaps will have a more difficult time finding 
profitable setups, especially if the stock is traveling laterally in a 
channel, or consolidating in a wedge.)

As the below 4-hour chart shows, the pound recently found intraday 
resistance in the 1.950 area, which it had tested twice in the past 
20-hours, before the short-entry was derived. The chart is fairly 
self-explanatory in terms of the contrarian signal… Intraday and swing 
traders would have attempted to take short positions at, or near 
resistance. The trade would have most likely, been profitable.

IMPORTANT: If you look closely at the area where the signal was 
generated, you will see that the pair briefly broke above resistance, 
just slightly. This is known as a “head fake” and generally shakes out 
weak hands, rookies, or those who do not have a stop loss plan already 
in effect. Thus, to avoid falling victim to head fakes we can do one of
 two things (or both):

<ol>
<li>Place stops at a level outside of support, or resistance, at a point
 large where we won’t be devastated if our stops are hit and… </li>
<li>The stop should be at a level far enough outside of support, or 
resistance that will keep us from falling victim to a head fake, should 
the pair make a quick move outside support, or resistance and then 
retrace itself. One way of doing this not closing our position unless 
the chart-bar (4-hour in this case) closes outside of support, or 
resistance. </li>
</ol>
In short, though support and resistance are rather basic when it 
comes to technical analysis, they can be extremely effective for 
dexterous traders. And really, sometimes, keeping things simple is the 
best course of action anyway.</div>

Using Support and Resistance in Forex Trading

Many people disregard technical analysis as a hoax, and in some cases it can very well be. However, in Forex, technical analysis is a vital trading tool, as markets are “blind.” What’s a blind ma…

18 Nov 2014

Support and Resistance Trading Strategy

<div dir="ltr" style="text-align: left;" trbidi="on">
 Support and Resistance Forex trading strategy — 
is a widely used trading system based on the horizontal levels of support and
resistance. These levels are formed by the candlesticks' highs and lows. 
A break-through of these levels after a period of consolidation gives a signal 
for a trend. This strategy doesn't require any chart indicators except for the 
ability to draw lines (at least imaginary).

<h4>
Features</h4>
<ul>
<li class="green">Well-defined low stop-loss.</li>
<li class="green">Relatively high success rate.</li>
<li class="red">Unclear target levels.</li>
</ul>
<h4>
How to Trade?</h4>
<ol>
<li>Support level is formed by the lows of two or more candlestick bars that
form a rather straight horizontal line with no lower lows between them.</li>
<li>Resistance level is formed by the highs of two or more candlestick bars 
that form a rather straight horizontal line with no higher highs between 
them.</li>
<li>Consolidation is a period without any trend, forming near support or 
resistance level, with the relatively small candlestick bodies.</li>
<li>A close below the support level signals a short position.</li>
<li>A close above the resistance level signals a long position.</li>
<li>Stop-loss is set to the low of the previous candlestick (for the long 
positions) or to the high of the previous candlestick (for the short 
positions).</li>
<li>Take-profit can be set relatively to the stop-loss or as a trailing stop of
some sort.</li>
</ol>
<h4>
Example</h4>
Support set-up:

Resistance set-up:

A period of consolidation is clearly seen on both example charts. In both 
cases the support/resistance level is formed by two candles on a rather short
period. Stop-loss is placed close to the entry level. Take-profit couldn't be
clearly set at the position entry moment, but a risk/reward ratio of not less
than 1:2 could be used easily. If you are having trouble detecting support and 
resistance levels on the chart you can use our 
<a href="http://www.earnforex.com/metatrader-indicators">free MT4/MT5 indicators</a> for that: 
<a href="http://www.earnforex.com/metatrader-indicators/Support-and-Resistance">Support and 
Resistance</a> or <a href="http://www.earnforex.com/metatrader-indicators/TzPivots">TzPivots</a>.

<h4>
Warning!</h4>
<div class="notewarning">
Use this strategy at your own risk. EarnForex.com can't be responsible for
any losses associated with using any strategy presented on the site. It's not
recommended to use this strategy on the real account without testing it on demo
first.

</div>
<h4>
Discussion:</h4>
Do you have any suggestions or questions regarding this strategy? You
can always
<a href="http://www.earnforex.com/forum/f9/support-resistance-forex-strategy-3860/">discuss 
Support and Resistance Strategy</a> with the fellow Forex traders 
on the <a href="http://www.earnforex.com/forum/f9/">Trading 
Systems and Strategies forum</a>.</div>

Support and Resistance Trading Strategy

Support and Resistance Forex trading strategy — is a widely used trading system based on the horizontal levels of support and resistance. These levels are formed by the candlesticks' highs and lows…

18 Nov 2014

Forex Trading Strategies – Trading the False Break Part 2

<div dir="ltr" style="text-align: left;" trbidi="on">
Key Talking Points:

<ol>
<li>False Breaks Offer Great With Trend Trade Setups</li>
<li>Trading the False Break with Pin Bars</li>
<li>Trading the False Break with Engulfing Bars</li>
</ol>
In my prior article on <a href="http://2ndskiesforex.com/forex-trading-strategies/forex-strategies/trading-false-break-strategy-part-1/" target="_blank">trading the false break strategy</a>
 part 1, I shared the basic definition of a false break, covered what is
 the price action and order flow behind false breaks, and how we can 
trade them.

In this article, I will discuss how you can trade them using <a href="http://2ndskiesforex.com/forex-trading-strategies/forex-strategies/pinbar-trading-price-action-forex-trading-with-pinbars/" target="_blank">pin bars</a> and <a href="http://2ndskiesforex.com/forex-trading-strategies/forex-strategies/price-action-forex-trading-engulfing-bar-reversals/" target="_blank">engulfing bars</a>, along with entry, SL and TP techniques.

To Recap What A False Break Is 
I generally define a false break as one of the two following scenarios:

<ol>
<li>A break above/below a prior candle that fails to close above/below that candle</li>
<li>A break above/below a key level, quickly reversing that level, and sparking a counter-trend move</li>
</ol>
Below is another example of a false break: 
<a href="http://cdn.2ndskiesforex.com/wp-content/uploads/2014/04/forex-price-action-false-break-strategy-2ndskies-c2.png" style="line-height: 1.5em;"><img alt="forex price action false break strategy 2ndskies c2" class="alignnone wp-image-11857" height="404" src="http://cdn.2ndskiesforex.com/wp-content/uploads/2014/04/forex-price-action-false-break-strategy-2ndskies-c2-1024x561.png" width="737" /></a>

Looking at the chart above, we can 
see a clear downtrend, starting with A in the top left of the chart. The
 sell-off finds support at B, which eventually becomes a <a href="http://2ndskiesforex.com/forex-videos/price-action-trading-videos/price-action-chris-capre-advanced-price-action-trading-strategies/" target="_blank">role reversal level</a> at C.

Further along at E, we can see the <a href="http://2ndskiesforex.com/forex-trading-strategies/daily-signals/fx-price-action-euro-false-break-pin-bar-profits-140-pips-may-2nd/" target="_blank">textbook false break setup</a>, just like we defined in the prior article. The pair breaks up above the key level CT (counter-trend), stalls, then sells off again breaking back below, and offering a great false break setup.

This sell off heads all the way down to F for a nicely profitable trade, and is a great example of a false break setup.

Now we will discuss how to trade the false break setup with a pin bar.

The Pin Bar + False Break Setup 
Another type of false break setup is using the <a href="http://2ndskiesforex.com/forex-trading-strategies/forex-strategies/pin-bar-forex-trading-strategy-the-50-retracement-myth/" target="_blank">pin bar reversal pattern</a>. In many ways, the pin bar by itself, can be a type of ‘false break’.

This is true if the body of the pin bar itself is housed within the prior bar. The breaking above/below the prior bar, and then closing back within that bar, is in and of itself, a type of false break.

What we are going to discuss is how we can use this to trade the false break strategy in combination with the pin bar.

A Pin Bar + False Break Example 
<a href="http://cdn.2ndskiesforex.com/wp-content/uploads/2014/04/false-break-pin-bar-price-action-2ndskiesforex-c1.png" style="line-height: 1.5em;"><img alt="false break pin bar price action 2ndskiesforex c1" class="alignnone wp-image-11858" height="400" src="http://cdn.2ndskiesforex.com/wp-content/uploads/2014/04/false-break-pin-bar-price-action-2ndskiesforex-c1-1024x555.png" width="737" /></a>

In this chart above, we can see at A
 (top left), there is a bullish move to the dynamic resistance (20 EMA).
 The sell off from the <a href="http://2ndskiesforex.com/forex-trading-strategies/forex-strategies/what-is-dynamic-support-and-resistance/" target="_blank">dynamic resistance</a> to B only takes 3 bars, which means it was over 2.5x faster then the buying pressure at A.

From an <a href="http://2ndskiesforex.com/forex-trading-strategies/forex-strategies/price-action-order-flow-and-transitions/" target="_blank">order flow perspective</a>, the sellers are stronger, since it took them less time to cover the same distance.

After breaking below the support level at B, the pair bounces at D’ towards C, (very same support level at A), hence a role reversal level.

Now notice at C how the pair 
briefly broke above A. If the buyers were really in control, they would 
have kept pushing prices. But the pin bar formed a false break above the
 highs of the blue bar (or prior bar).

This breaking above then back 
below, suggested a likely false break and more selling. The pair sold 
off from C to D, re-affirming the <a href="http://2ndskiesforex.com/forex-trading-strategies/daily-signals/gold-pin-bar-false-break-big-figure-mar-26th/" target="_blank">pin bar + false break setup</a>.

NOTE: Observe how the support level at D and D’ formed another role reversal setup just after? This is a great example of <a href="http://2ndskiesforex.com/forex-trading-strategies/forex-strategies/how-to-trade-price-action-trends-in-forex-what-youve-been-missing/" target="_blank">trading with the trend</a>.

Entry, Stop & Limit 
If the pin bar represents a real false break, then the with trend direction should continue. Assuming I have read the <a href="http://2ndskiesforex.com/forex-trading-strategies/forex-strategies/setups-price-action-and-context/" target="_blank">price action context</a> correctly, I generally like to enter using one of two methods:

<ol>
<li>On a few pip break back below/above the key level</li>
<li>On a pullback setup to the key level</li>
</ol>
The first entry method (more aggressive), can protect you from 
missing the move, as sometimes the false break never offers a second 
chance to enter.

For those wanting more ‘confirmation’, then I’d recommend the second entry method.

Now assuming the pin bar is the high/low in the move, I’ll put my 
stop just above/below the pin bar. For my take profit, if there is a 
prior level which caused the bounce/sell-off leading into the pin bar, 
then I’ll target that. One can use that as the only target, or as a 
first TP holding for a deeper move.

Trading the Engulfing Bar + False Break Setup 
In reality, the <a href="http://2ndskiesforex.com/forex-trading-strategies/daily-signals/aussie-sell-signal-engulfing-bar-plays-oct-24th/" target="_blank">engulfing bar</a>
 + false break setup is not much different from the pin bar false break.
 I am still wanting to trade them with trend as much as possible, 
looking for a false break followed by an engulfing bar.

An Engulfing Bar + False Break Example 
<a href="http://cdn.2ndskiesforex.com/wp-content/uploads/2014/04/engulfing-bar-false-break-price-action-2ndskiesforex-c3.png"><img alt="engulfing bar false break price action 2ndskiesforex c3" class="alignnone wp-image-11860" height="401" src="http://cdn.2ndskiesforex.com/wp-content/uploads/2014/04/engulfing-bar-false-break-price-action-2ndskiesforex-c3-1024x556.png" width="737" /></a>

Turning to the chart above, we can see the strong selling stops at A. This forms a <a href="http://2ndskiesforex.com/forex-trading-strategies/forex-strategies/3-keys-for-identifying-breakouts/" target="_blank">price action squeeze</a>, which leads to a breakout and further selling.

The pair pulls back to B (the support level at A), and forms a false break. This is immediately followed by an engulfing bar.

Now ask yourself, if the bulls were truly in control, why did the price action immediately reverse after taking out A? This should have been a clue to watch for a false break.

You’ll notice right after the engulfing bar was an inverted pin bar. 
This is a failed attempt to rally, suggesting the buyers tried to push 
higher, but failed. What results is heavy selling from the open of the 
next bar down to C, and eventually E, resulting in a nice profit.

NOTE: Take a 
look at the move from C – D. This is a corrective pullback following an 
impulsive move. The corrective pullback went into the dynamic resistance
 (2o EMA), and then sold off heavily after.

This would have represented a great pullback setup, and is a good example of how <a href="http://2ndskiesforex.com/forex-trading-strategies/forex-strategies/impulsive-and-corrective-price-action/" target="_blank">impulsive and corrective moves</a> manifest.

<a href="http://cdn.2ndskiesforex.com/wp-content/uploads/2014/04/green-light-bulb-2ndskiesforex.jpg"><img alt="impulsive and corrective price action 2ndskiesforex" class="aligncenter size-medium wp-image-11861" height="186" src="http://cdn.2ndskiesforex.com/wp-content/uploads/2014/04/green-light-bulb-2ndskiesforex-300x186.jpg" width="300" /></a> 
Entry, SL & TP 
The entry, stop loss and take profit techniques are the same as the pin 
bar + false break. The only variation, would be if the engulfing bar 
closes back below/above the <a href="http://2ndskiesforex.com/forex-trading-strategies/forex-strategies/trading-support-and-resistance-key-levels/" target="_blank">key level</a>.

If it does, I’ll look to take a pullback into the engulfing bar, 
which is far more optimal entry as a whole. For more information on why 
the pullback is a more optimal entry for the engulfing bar, <a href="http://2ndskiesforex.com/forex-trading-strategies/forex-strategies/price-action-forex-trading-engulfing-bar-reversals/" target="_blank">click here</a>.

To Recap 
In today’s article, I talked about how false breaks offer great with 
trend setups. I then went into two more examples of the false break 
strategy, showing how you can trade them with pin bars and engulfing 
bars.

I shared entry, SL and TP techniques, along with explaining the price action and order flow behind these great setups.</div>

Forex Trading Strategies – Trading the False Break Part 2

Key Talking Points: False Breaks Offer Great With Trend Trade Setups Trading the False Break with Pin Bars Trading the False Break with Engulfing Bars In my prior article on trading the false break s…

18 Nov 2014

Trading the False Break Strategy Part 1

<div dir="ltr" style="text-align: left;" trbidi="on">
Key Talking Points:

<ul>
<li>False Breaks Offer Great Price Action Trading Setups</li>
<li>You Can Trade the False Break Strategy with Pin Bars and Engulfing Bars</li>
<li>Look for False Break Setups Trading With the Trend</li>
</ul>
Ever tried to enter on a breakout 
setup, only to have the trade immediately reverse on you? I’m guessing 
this has happened to you many times (present trader included).

With the market volatility declining over the last several years, <a href="http://2ndskiesforex.com/forex-trading-strategies/forex-strategies/pinbar-trading-price-action-forex-trading-with-pinbars/" target="_blank">false breaks</a>
 can and will happen all the time. The key to avoid getting stopped out,
 and actually profit from these false break setups, is to understand the
 <a href="http://2ndskiesforex.com/forex-trading-strategies/forex-strategies/setups-price-action-and-context/" target="_blank">price action context</a> which often precedes them.

In this two part article series, I 
will begin today’s discussion by defining a false break. Next, I’ll go 
over a common false break setup, which is trading the false break with 
trend. Then I will go over a strategy to trade the false break, and 
conclude by recapping the key points.

What is A False Break? 
I would prefer to define a false break as one of the following two scenarios:

<ol>
<li>A break above/below a prior candle that fails to close above/below that candle</li>
<li>A break above/below a key level, quickly reversing that level, and sparking a counter-trend move</li>
</ol>
Below is an example of the first type with a pin bar + false break: 
<a href="http://cdn.2ndskiesforex.com/wp-content/uploads/2014/04/trading-the-false-break-strategy-2ndskiesforex-c1.png"><img alt="trading the false break strategy 2ndskiesforex c1" class="alignnone wp-image-11811" height="400" src="http://cdn.2ndskiesforex.com/wp-content/uploads/2014/04/trading-the-false-break-strategy-2ndskiesforex-c1-1024x555.png" width="737" /></a>

In the chart above, you can see the arrow to the top left, showing a 
bullish move running into resistance. The pair then settles back, and 
makes a second attempt to take out this key level.

But on the top right, you can see it forms a <a href="http://2ndskiesforex.com/forex-trading-strategies/daily-signals/gold-pin-bar-false-break-big-figure-mar-26th/" target="_blank">pin bar + false break</a>.

From an Order Flow Perspective 
Looking at this from an <a href="http://2ndskiesforex.com/forex-trading-strategies/forex-strategies/price-action-order-flow-and-transitions/" target="_blank">order flow perspective</a>,
 the bulls were in control leading up to the level, and were able to 
push past it. Either there was massive profit taking on their part, or 
they ran into heavy sellers a few layers deep behind the level.

Regardless, the sellers over-whelmed the buyers, and pushed the pair back below the <a href="http://2ndskiesforex.com/forex-trading-strategies/forex-strategies/the-best-support-and-resistance-levels-part-1/" target="_blank">key resistance level</a>.
 After a second attempt to regain the level, the sellers realizing they 
had control, sold even more, pushing the pair down impulsively.

Trapping Traders 
In most false breaks, there are ‘trapped traders‘,
 meaning traders who are caught long when the pair is about to go short,
 or vice versa. Those trapped traders once the trade goes negative, will
 likely be stopped out, & further fuel the counter-trend move.

The <a href="http://2ndskiesforex.com/advanced-price-action-course/" target="_blank">more savvy traders</a>
 will exit manually when they realize they are trapped, while the slower
 traders will likely get hit for the full stop. There are price action 
clues to tell when you’ve been trapped, but that is for another article.

Trading The False Break Setup With Trend 
It should not be surprising, one of the best false break setups occur when <a href="http://2ndskiesforex.com/forex-trading-strategies/forex-strategies/how-to-trade-price-action-trends-in-forex-what-youve-been-missing/" target="_blank">trading with the trend</a>. This is because the underlying order flow is heavily imbalanced, meaning it’s heavily bullish or bearish.

When a false break setup forms counter-trend, it usually runs into 
buyers or sellers who are happy to take the pullback getting a better 
price. Their overall strength in the market makes it harder for 
counter-trend false breaks to be maintained.

This is why false breaks present such great trade opportunities.

Below is a classic example of trading the false break setup with trend: 
<a href="http://cdn.2ndskiesforex.com/wp-content/uploads/2014/04/trading-the-false-break-strategy-2ndskiesforex-c3.png"><img alt="trading the false break strategy 2ndskiesforex c3" class="alignnone wp-image-11814" height="396" src="http://cdn.2ndskiesforex.com/wp-content/uploads/2014/04/trading-the-false-break-strategy-2ndskiesforex-c3-1024x550.png" width="737" /></a>

In the chart above, starting with the top left, we can see the <a href="http://2ndskiesforex.com/forex-trading-strategies/forex-strategies/impulsive-and-corrective-price-action/" target="_blank">heavy impulsive selling</a>. Eventually this leads to a bounce which hits the <a href="http://2ndskiesforex.com/forex-trading-strategies/forex-strategies/trading-support-and-resistance-key-levels/" target="_blank">key resistance level</a> 2x (marked by two red arrows). After forming a new low (red line at bottom), the pair bounces to retest the bears at the same resistance level.

Now note how the pair breaks above this level with a really large blue bar, closing at the highs. Ask yourself, if the bulls were really in control, how come they did not produce any follow through?

The next two doji candles showed no real strength or follow up 
buying, which should have been a warning sign to any bulls already long.
 Bears wanting to <a href="http://2ndskiesforex.com/forex-trading-strategies/forex-strategies/2-price-action-tips-for-beginning-traders/" target="_blank">trade with trend</a>, should have been looking for the false break and close below which they got on the 3rd candle.

Entry, Stop & Take Profit 
With such a clearly defined trend and resistance level, there are two general entry techniques;

<ol>
<li>Sell on Break back below the key level</li>
<li>Wait for pullback setup to the key level</li>
</ol>
More aggressive traders who feel confident in their price action 
skills may sell on the break back below the key level. This may or may 
not offer the best price, but you may not get a second chance to enter 
if the sellers came in hard on the false break.

More conservative traders can wait for a <a href="http://2ndskiesforex.com/forex-videos/price-action-trading-videos/price-action-chris-capre-advanced-price-action-trading-strategies/" target="_blank">pullback setup</a>
 to the key level. If the false break is real along with the level, then
 the trade should hold and not go much into the negative.

I generally recommend placing the stop above the high (or below the low) of the false break by a few pips, depending upon the volatility and liquidity of the instrument.

The first target should be the other end of the consolidation. If you
 want to go for multiple targets, then the next key support or 
resistance level would be suggested.

To Recap 
In today’s article, I talked about the price action and order flow 
behind a false break setup, and why it can be a powerful trade 
opportunity. I discussed the two types of false breaks and how to 
generally define one.

Lastly, I covered why to look for with trend setups trading the false break, giving the entry, stop and take profit methods.

When you <a href="http://2ndskiesforex.com/forex-trading-strategies/daily-signals/2100-pips-live-price-action-trading-setups-mar-31st/" target="_blank">learn to read price action in real time</a>,
 you will begin to spot these false break setups more easily. As you get
 skilled in identifying them, you will avoid the common traps, and 
profit heavily from them as they offer great opportunities.</div>

Trading the False Break Strategy Part 1

Key Talking Points: False Breaks Offer Great Price Action Trading Setups You Can Trade the False Break Strategy with Pin Bars and Engulfing Bars Look for False Break Setups Trading With the Trend Eve…

18 Nov 2014

The ‘False Break’ Trading Strategy

<div dir="ltr" style="text-align: left;" trbidi="on">
 The ‘False Break’ Trading Strategy 
 
<img alt="false break trading strategy" class="size-full wp-image-21709 alignright" height="334" src="http://www.learntotradethemarket.com/wp-content/uploads/false-break-trading-strategy-e1374812153989.png" width="294" /> 
 
When was the last time you entered a trade and it immediately moved 
against you even though you felt confident the market was going to move 
in your favor? When was the last time you traded a breakout and got 
stopped out? I’m willing to bet you’ve experienced one or both of these 
things recently in your own trading, and I’m also willing to bet that me
 or one of my students probably took the opposite side of one of these 
trades that seemed to ‘fake you out’ of your position…
 
You see, false-breaks happen all the time in the markets; they are a 
result of the ‘herd mentality’ that causes people to buy the top of a 
move or sell the bottom. As price action traders, we are in a unique 
position to take advantage of false-breaks and of the weak ‘herd 
mentality’ that so many amateur traders possess.

I have made most of my money as a trader by using contrarian trading approaches like false-breaks and my proprietary <a href="http://www.learntotradethemarket.com/trading-videos/forex-price-action-trading-strategies-video">fakey trading strategy</a>.
 It is the power of contrarian trading and using false-break patterns 
and fakey setups that allows myself and other savvy price action traders
 to profit from other traders’ misfortunes. This may sound a little 
harsh, but it’s the reality of trading that the majority of traders lose
 money, informed and skilled traders make money, and the ‘pigs get 
slaughtered’, as the saying goes. I hope there are light bulbs going off in your head now,
 because this article is all about contrarian thinking, false-breaks, 
and how to take advantage of the ‘herd mentality’ that causes so many 
traders to enter right when the market is about to change direction…

<h2>
So what exactly is a false-break?</h2>
I thought you’d never ask! Joking, I know you are probably thinking that right now, so here you go…

A false-break can be defined as a ‘deception’ by the market; a test 
of a level that results in a break of that level but the market then 
retracts and does not sustain itself above or below that level. In other
 words, the market does not close outside of the level being tested; 
rather it leaves behind a false-break of it. These false-breaks are huge
 pieces of evidence for impending market direction, and we need to learn
 to use them to our advantage instead of becoming their victim.

Here is a visual example of a false-break of a key market level:

Essentially, a false-break can be thought of as a contrarian move 
that ‘sucks’ the over-committed side of the market out. The concept is 
to wait for the price movement to clearly show that a market has 
committed to one side of a trade and that they would be ‘forced’ to 
liquidate their position(s) on a strong reversal in the other direction.
 Typically, we see these scenarios unfold as a trending market becomes 
extended and all the amateurs jump in right before the counter-trend 
retrace, or at key support and resistance levels or at consolidation 
breakout scenarios.

The herd mentality causes traders to enter the market typically only 
when it ‘feels’ safe. However, this is the deception; trading off 
feeling and emotion is exactly why most traders lose money in the 
markets. Many traders become deceived because the market looks very 
strong or very weak, so they think it’s a no-brainer to just jump in 
with that momentum. However, the truth of the matter is that markets ebb
 and flow and they never move in a straight line for very long. This is 
known as “reversion to the mean” and it’s something I expand on 
significantly in my advanced Forex <a href="http://www.learntotradethemarket.com/forex-systems-trading-course">trading course</a>.

We really have to use logic and counter-intuitive or ‘contrarian’ 
thinking to profit off of the weak-minded herd mentality that dominates 
most traders’ minds. This is why it’s very important to remain 
disciplined in the area of trading false-breaks, rejections and 
failures, and why I love trading them so much.

<h2>
Types of False Breaks</h2>
1. Classic Bull and Bear traps at key market levels

A bull or bar trap is typically a 1 to 4 bar pattern that is defined 
by a false-break of a key market level. These false-breaks occur after 
large directional moves and as a market approaches a key level. Most 
traders tend to think a level will break just because a market has 
approached it aggressively, they then buy or sell the breakout and then 
many times the market will ‘fake them out’ and form a bull or bear trap.

A bull trap forms after a move higher, the amateurs who were on the 
sidelines watching a recent strong move unfold cannot take the 
temptation anymore, and they jump in just above or at a key resistance 
level since they feel confident the market now has the momentum to break
 above it. The market then breaks slightly above the level and fills all
 breakout orders, and then falls lower as the big boys come in and push 
the market lower, leaving the amateurs ‘trapped’ in a losing long 
position.

2. False-break of consolidation

False breaks of consolidation or trading ranges are very common. It’s
 easy to fall into the trap of thinking a trading range is going to 
breakout, only to see it reverse back into the body of the range. The 
best way to avoid this trap is to simply wait until there is a clear 
close outside of the trading range on the daily chart, and then you can 
begin to look for price action trading signals in the direction of the 
breakout.

3. Fakey’s (inside bar false-breaks)

The Fakey setup is one of my all-time favorite price action setups 
and learning to trade it will do a lot for helping you to understand 
market dynamics. Essentially, the Fakey is a price action pattern that 
requires there to be a false-break of an inside bar setup. So, once you 
have an inside bar setup, you can watch for a false-break of the inside 
bar and the mother bar. Now, I am not going to get into all the 
different versions of the fakey trading strategy today or the different 
ways to trade it, but you can learn everything about my proprietary <a href="http://www.learntotradethemarket.com/trading-videos/learn-to-trade-the-forex-fakey-setups-in-forex">forex fakey trading strategy</a> in my professional Forex trading course.

Here’s an image of two Fakey setups, note that one has a pin bar as 
the false-break and other does not, these are just two of the variations
 of the Fakey setup:

<h2>
False-breaks can create long-term trend changes</h2>
As <a href="http://www.learntotradethemarket.com/forex-articles/why-use-forex-price-action-analysis">price action traders</a>,
 we can use the price action of a market to anticipate false-breaks and 
look for them at key levels as they will often set off significant 
changes in price direction or even a change in trend from these key 
levels.

We need to pay attention to the ‘tails’ of candles that occur at or 
near key levels in the market. Ask yourself how prices reacted during 
each daily session…where did they close? The close is the most important
 level of the day, and often if a market fails to close beyond a key 
market level, it can signal a significant false-break. Often, prices 
will probe a level or attempt to break out, but by the close of the 
daily bar price has rejected that level and ‘tailed out’, showing a 
false-break or false-test of the level. A failure of the market to close
 beyond a key market level can lead to a large retracement or a change 
of trend. Thus, the close of a price bar is the most important level to 
watch, and the daily chart close is what I consider to be the most 
important.

Here’s an example of a false-break in the EURUSD daily chart that led to a top in the market and started a long-term downtrend:

History Teaches Us A Lesson

It’s worth noting that on the week famous trader George Soros shorted
 the British pound and ‘broke’ the Bank of England ( September 16, 1992)
 –  the chart had shown a massive false-break signal. The chart below 
shows the price breaking upwards to new highs and then crashing back 
down. To those who follow me regularly you will note that this was 
actually a classic <a href="http://www.learntotradethemarket.com/forex-trading-strategies/price-action-setups-pin-bars-fakeys-inside-bars">fakey setup,</a> and is clear evidence that this price action strategy has worked for decades.

<h2>
Final word on false-breaks…</h2>
As traders, if we don’t learn to anticipate and identify deceptions 
or ‘false-breaks’ in the market, we will lose money to traders who do. 
If we pay attention to the price action at key levels on the daily chart
 time frame, the ‘writing’ is usually on the wall in regards to 
false-breaks.

If I had to leave you with one crucial piece of advice for your Forex
 trading career, it would be to drop everything right now and start 
studying false-breaks and contrarian trading approaches. By doing so, 
you will be ahead of 95% of traders who are stuck in a cycle of trading 
off mainstream misconceptions and ineffective trading methods. As a 
contrarian, I want to be trading when most other retail traders are 
committed to the wrong side of the market, and this is difficult to do 
if you don’t understand false-breaks and fakey patterns. Trading 
false-breaks and my proprietary ‘fakey setup’ is a core focus in my <a href="http://www.learntotradethemarket.com/forex-systems-trading-course">Forex price action trading course</a>,
 and I expand on these topics in great detail in it. I teach my students
 a plethora of different price patterns to look out for when trading 
false-breaks and fakey setups. This ‘contrarian’ style of trading is 
something I strongly believe in, and it has proven itself time and time 
again. If you were to learn only one single trading strategy to apply in
 your Forex trading, false-breaks would be on top of the list.</div>

The ‘False Break’ Trading Strategy

The ‘False Break’ Trading Strategy When was the last time you entered a trade and it immediately moved against you even though you felt confident the market was going to move in your favor? When…

18 Nov 2014

Fakey Trading Strategy

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The fakey forex trading strategy was developed by a forex trader called Nial Fuller from Australia.

It is a very good <a href="http://swing-trading-strategies.com/" target="_blank" title="Swing Trading Strategy">forex swing trading strategy</a> which is very easy to spot on your forex charts if you know what you are looking for.

Forex Indicators: The fakey forex trading strategy 
does not require the use of any forex indicators at all. All you need is
 your eyes and a bit of price action analysis of candlesticks

Time frames: Preferably  larger timeframes from 1hr to daily

Currency Pairs: Any

THE FAKEY TRADING SETUP

The forex chart below shows the what the fakey trading setup looks like for a buy (long) situation.

It indicates rejection of an important level (for example, support, resistance, fibs, pivots etc)  within the market.

Here’s what Nial Fuller Says about the Fakey Tradin Setup:

“Often times the market will appear to be headed one direction and then reverse sucking
 all the amateurs in as the professionals push price back in the 
opposite direction. This can set off some pretty big moves in the Forex 
market”

The  illustration to the right is what  the fakey pattern essentially consists of :

<ol>
<li>an inside bar</li>
<li>followed by a false break of that inside bar and then</li>
<li>a close back within its range.</li>
</ol>
The fakey entry is triggered as price moves back up past the high of the inside bar (or the low in the case of a bearish fakey).

In the chart on the right, you can see the market was recently moving higher before the fakey formed.

Note the fakey was formed on the false-break of an inside bar setup 
that occurred as all the amateurs tried to pick the market top, the pros
 then stepped in and flushed out all the amateurs in a flurry of buying.

HOW TO TRADE THE FAKEY TRADING SETUP

Buy Rules:

<ol>
<li>Place a buy stop order anywhere from 2-5pips above the high of the false breakout candlestick.</li>
<li>Place your stop loss anywhere from 2-5 pips below the low of the false breakout candlestick.</li>
<li>Take Profit When price moves 3 times what you risked or you can use a previous swing high as your take profit target.</li>
<li>Consider trailing stop your your trades when it is in profit so you lock in your profit as price moves upwards.</li>
</ol>
Sell Rules: (The exact opposite of Buy rules)

<ol>
<li>Place a sell stop order anywhere from 2-5 pips below the low of the false breakout candlestick.</li>
<li>Place stop loss 2-5 pips above the high of that breakout candlestick.</li>
<li>Profit should be 3 times what you risked initially or use previous swing low point as your take profit target.</li>
<li>Trailing stop technique should be utilized to lock in your profits as price moves down.</li>
</ol>
ADVANTAGES OF THE FAKEY FOREX TRADING STRATEGY

<ul>
<li>The trading setup is not complicated and it is easy to spot if you know what you are looking for.</li>
<li>its a forex strategy based solely on price action and candlesticks 
and does not have a lot of forex indicators to make things look too 
complex.</li>
<li>explosive moves tend to happen with the fakey setup so you will get 
hundreds of pips easily if you trade from 1hr  and 4hr timeframes.</li>
</ul>

DISADVANTAGES OF THE FAKEY FOREX TRADING STRATEGY

<ul>
<li>Price action is not always 100% right, sometimes you will get caught out.</li>
<li>Avoid trading fakey setups when price is consolidating (moving sideways).  Trade fakey setups in strong<a href="http://swing-trading-strategies.com/trend-trading-analysis-prediction/" target="_blank" title="Trend Trading"> trending markets</a>.</li>
</ul>
So there you have it, the Fakey Forex Trading Strategy. Try it out and see how it works for you!

Please “like”, “tweet”, “share” this by clicking the buttons below, I really would appreciate that. 
 - See more at: http://swing-trading-strategies.com/fakey-trading-strategy/#sthash.MWb6tKjc.dpuf</div>
</div>

Fakey Trading Strategy

The fakey forex trading strategy was developed by a forex trader called Nial Fuller from Australia. It is a very good forex swing trading strategy which is very easy to spot on your forex charts if y…

18 Nov 2014

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