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:

  1. I firmly believed that wedge we discovered in Step 1 was going to break to the downside.
  2. 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
  3. 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.

Join the Discussion!

  1. Profile photo of Michael Noyelle
    Michael Noyelle
    October 6, 2010 at 07:37Reply

    Sweet !

  2. Profile photo of REMORA
    REMORA
    October 6, 2010 at 10:36Reply

    too good

  3. Profile photo of REMORA
    REMORA
    October 6, 2010 at 11:47Reply

    great Mark. pls open your haven’s door for we in Nigeria to enter . i take GOD BEG YOU

  4. KRISTOFA
    October 6, 2010 at 14:35Reply

    Thanks dear Mark for the lesson which is very invaluable.

  5. Profile photo of Greg
    Greg
    October 6, 2010 at 17:00Reply

    Great example Mark. Shows the importance of patience in this game, being picky and waiting for proper setups instead of being too eager and jumping in

  6. gabby
    October 7, 2010 at 14:05Reply

    Those of us that can’t use paypal are still waiting for alternatives… Mark!!!

  7. Akinnuoye Williams
    October 30, 2010 at 07:33Reply

    The support/resistance lesson you taught me is comprehendable to me, but I want to teach me what time of the day can we look for the CP (candle pro) to enable a newbie like to do independent analysis before http://www.piphut.com analysis is published to enble me compare mine with your analysis. I need this accurate to ascertain if what I have taught before now is the right time to obtain the daily market trend? To be precise, many school of thought have it that, we should ascertain market trend by 6 GMT.

  8. kentoppy
    April 6, 2012 at 17:00Reply

    Good analysis for professionals…………………..thanks

  9. Erisareg
    September 27, 2012 at 03:27Reply

    Ah! Taraha wenna epa kiyanna beri unata. Oyage lesnoss excellent. godak dewal igena gatta. mama 2008 di FXCM eke live account ekak open karala $1000 kata wediya paadu karagena account eka wahala demma. den ayith asa hituna Forex walata.

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