Trade Example: Support/Resistance using CandlePro
Yesterday we had a picture perfect setup for a Support/Resistance trade using CandlePro to confirm the trade, and provide us entries and exits so I thought I would share. P.S. - click on any image below to enlarge it.
Step 1: Look at the chart
The first step, of course, is always to look at the chart and analyze which direction the price action is leading us. Here is the chart from yesterday:
As you can see there is a wedge pattern in the chart. Because the wedge pattern is preceded by a long bearish pole the probable breakout direction of this consolidation pattern is to the downside. Lurking underneath that wedge pattern though is strong daily support in the form of a red line on the chart. The EURUSD has been skipping off this support for weeks now so it is an area of concern for any shorts we may take.
This daily trend is easy to spot, by the way. Just back out to a higher timeframe and zoom out a little bit. No indicators required for this clear of a trend. Take a look:
Step 2: Look for CandlePro confirmation
My analysis tells me the bias for the wedge is for a downside breakout so I then turn to CP for bearish confirmation. If I wasn’t using CP I would probably wait for a sustained breakout and get a worse price.
I look on the 30m and 1h (just my preference) and took the 19:00 Bearish Engulfing:
In hindsight I could have done without this trade. It ended in profit, but it was against the overall trend which usually is a no-no for me, and the RR ratio was mediocre at best (1.6). What bolstered this signal in my mind were three items:
- I firmly believed that wedge we discovered in Step 1 was going to break to the downside.
- Strong support, like we have with the rising trend support (red line on chart) can act as a magnet in these situations, pilling the price toward it
- It was a DOUBLE. This was really the deciding factor for me. If it was a single signal I most likely would not have taken it.
I ended up getting short after a brief pullback (1.3685).
Step 3: Watch the Rising Trend Support Carefully
Alright, so now we are sitting on a short from 1.3685, the pair breaks the wedge to the downside (good for our trade) and starts challenging that strong daily trend support we talked about in steps 1 and 2 above which is the bottom red line on the chart at the top of this page.
Because we know this is strong support and our trade is against the overall trend I immediately close half the position as soon as it looks like it might touch. I don’t close it all yet though. In fact, unfortunately for me at this point in the trade I go to sleep, literally. My SL is set on the remaining position to lock in profit and I am tired - but good for those of you during the London session who go to see these next signals.
Here is what those of you in the London session saw next:
A bullish, 4h doji that just touches our strong daily trend support. This would have been reason enough for me to close out the remainder of my position and consider going long. To decide whether or not to go long here we need to look at performance report:
A 2.2 RR average and median, on a bullish doji that just touches our rising trend support? STRONG rising trend support from the daily charts that has been respected for weeks now? In the direction of the primary trend? Count me in for a few lots at least at the close price of this candle – 1.3650.
Step 4: Add to position with more confirmation
If that bullish 4h doji, in the direction of the trend that just touched strong daily support and had a great RR ratio wasn’t enough, look at the very next 4h candle:
It is a Three Inside Up, TRIPLE. That means the EUR/USD, GBP/USD, and AUD/USD kicker all line up perfectly on the 4h charts.
Add some lots here if you have more room for risk in your money management system. Why? Because trades don’t get any better than this. You have a trade in the direction of a perfect trend, with great historical Reward/Risk ratios, a doji that just touched daily support that hasn’t been broken in weeks and then was confirmed with a TRIPLE Three Inside Up.
Did I mention the historical Reward/Risk ratio on that Triple 3inup was over 3:1?
Step 5: Take Profit
That little 4h bullish doji is at about +200 currently, for each lot you went long.
Congrats to those of you who got in for the full ride and/or are still riding.