Trading FX Support & Resistance --Vic Noble
Chapter 1
Important Disclaimer
The products referenced at this site are analytical tools only, and are not intended to replace individual research or licensed investment advice. Unique experiences and past performances do not guarantee future results. Trading currencies involves substantial risk, and there is always the potential for loss. Your trading results will vary. No representation is being made that these products or methodologies, and any associated advice or training, will guarantee profits, or not result in losses from trading. Never use anything other than risk capital for trading.
Chapter 2
Welcome
Before we begin I’d like to take this opportunity to thank you for getting this short course. But don’t be deceived by its short length. I didn’t put any “fluff” or “filler” information in here, or anything that was not useful and necessary. I believe you’re going to find the information contained herein not only very useful but very profitable if you use it as I show.
As for me, my name is Vic Noble, and I have been trading the various markets for over 30 years. For the past 4 years or so I have focused solely on the foreign exchange market, or as it is more commonly known, the FX market.
I was a former futures broker for 5 ½ years for the biggest futures trading company in the world at the time. Since January of 2006, I have been a personal coach for those wishing to fast track their progress. I’ve currently coached more than a thousand aspiring traders.
In addition to personal coaching, I have authored several courses and conduct an on-line service twice weekly, called the Coach’s Corner, to help people stay focused and reinforce the concepts that I teach. In these sessions, I answer questions from people, show trade examples that have been sent in, examine different currency pairs, discuss where we should expect price to react and cover many important trading topics in depth.
All of my courses and services can be viewed at the end of this course.
So again, congratulations for getting the course. I truly wish you the very best!
Chapter 3
Risk Management
The first thing we need to talk about is risk. I’ve put this topic in at the very beginning because it is the most important. Yes, more important than your trading system and your indicators, or whatever.
If you choose to ignore this part of the course, you can most likely kiss your account good-bye. After all of the 30 years of experience and coaching that I mentioned earlier, believe me, I’ve pretty much seen it all. And in all of this experience, I have NEVER, repeat NEVER, seen anyone become consistently successful without exercising impeccable risk management. Oh sure, the odd person got lucky for a while. Sometimes for weeks or even months, but it didn’t last. Eventually, the party came to a crashing halt.
It has always intrigued me as to the reasons people fail to use prudent risk controls. There are lots of course, but generally I think it’s the old get rich quick attitude. You know, kind of a macho approach. Anyway, there is no greater teacher than the markets. Even the greatest of analysts can look forward to being quickly humbled by the markets if they decide to ignore the risk aspect of trading.
MONEY MANAGEMENT
There are 2 parts to risk management—money management and trade management. First let’s talk about money management.
If you want to last in this business, I would highly, highly recommend that you keep your overall risk to no more than 1 ½% of your total account value. If you think you’re really good, you may want to go to 2%, but that is the absolute maximum. Less is better, I’m telling you. And I’m speaking from experience here, I didn’t just make this up. Of course the reason for the small risk is because you absolutely MUST plan on having losses—even strings of losses. They will happen, that’s trading. But if you’re prepared ahead of time, you’ll be in a far better position to come back from losses than someone who over-leveraged their risk.
As an example, if you have a $10,000 account size, then you should not allow a loss of more than around $150 - $200. That’s it. And I would add further that this amount would be the most I would allow as a loss on any one day. That’s just me. But I’ve been doing this for a long time.
If you have multiple positions on, then I am suggesting that the cumulative risk should not exceed the above numbers. Can you stand that?
Now, let me tell you something else about trading. You DO NOT have to trade much to make a lot! It’s incredible to me how people think that they have to find a trade, or multiple trades, every single day! Hey, if there isn’t anything setting up according to what you’re looking for, why in the heck would you trade? Yet, I see it happen over and over. People feel a little “ripped off” if they’ve sat up all night trying to get a trade and didn’t get one. Especially if there were some big moves. Poisonous thinking for sure.
Let me give you a hypothetical example of how little you need to do in order to get big returns. In the forex markets, if you were to trade with a 30 pip stop loss, and you only risked 2% maximum of your account, and your profit was only a mere 25 pips per week, you would make very close to 100% per year due to the compounding effect of money! I think 100% a year is outstanding. Yet people trade as if they’re trying to make that much every week!! Crazy.
TRADE MANAGEMENT
Trade management is all about what you do once you’re in a trade. In other words, when do you move your stop to lessen the risk, and of course where do you take profits or scale out. If you don’t know this stuff ahead of time that means you’re going into the trade with NO game plan. That’s another large boo-boo. Remember, once you’re in a trade, it is just critical to manage the trade properly so that you can reduce risk and capture profit. If it goes the wrong way, you’ve also gotta know when to fold ‘em. Later on I’m going to show you some specific ideas on where to place stops and manage risk once you’re in the trade, and of course where to take profits.
So there you have it—money management and trade management. Go into the trading arena without these things and you are going to be fed to the lions. Again, I have this topic at the front of the course for a very good reason—it’s the most important! Without it, I don’t care how good your trading system is, you’ll likely fail miserably. And the thing is, this is something that is within your control!
Chapter 4
Why Trade Using Support And Resistance Levels
The most important and best indicator there is—bar none—is price. It is exact, there is no lag, and price is at a certain level because that’s where it is!! Period! How’s that for logic?!!
Price doesn’t know if it’s supposed to be overbought or oversold and therefore turning around and going the other way. And that’s where indicators can lead you astray.
Over the years there has been a tremendous fascination with technical indicators, and indeed most trading platforms are full them!! Traders love to load up their screens with a colorful array of tools in order to help them more accurately predict what’s going to happen next. I am here to tell you right now that using technical indicators alone for trading is, in my opinion and experience, very dangerous and costly. Actually it would be more accurate to describe it as trading suicide.
One of the big problems with most technical indicators, of course, is the fact that they lag price action. I’m talking about indicators such as MACD, Moving Averages, Stochastic, RSI and so on. It’s well beyond the scope of this document to go into the formulas behind each of them, but suffice to say the astute trader needs to be very aware of the limitations of these indicators and use them with great discretion.
When analyzing a chart from a technical perspective, the technician needs to be a master of his or her tools, and NOT a slave to them. Technical indicators should only be used as confirmation of what price is telling you, NOT the other way around. For example, there will be many times when the stochastic indicator is “overbought” from a mathematical point of view, however, price can continue going up for a very long time. Selling just because an indicator says it’s overbought is just plain ignorant (in my opinion of course). As another example, price may be trading above certain moving average lines, and the trader may mistakenly think that this means he/she should be buying only. Wrong.
Now I’m NOT saying that there is no value in technical indicators, so please don’t get me wrong. I do use them. All I’m saying is that if you rely primarily, or worse yet, solely on technical indicators, you’re asking for trouble. There are much better ways to use them as I’ll demonstrate later on.
Price, on the other hand, tells you everything that has happened and is currently happening. It’s there for all to see. It is exact, it’s instant, and there is no lag. You can easily pick out areas where price has shown support or resistance, and areas where price has consolidated. Not where you “think” it might show support or resistance, but where it actually has done so.
These levels of price support or price resistance that you see on charts are known as “key” levels. And just as an aside, the higher time frame key levels are stronger than the shorter time frame ones. We’re going to discuss these levels shortly, because as you’ll see they are tremendously important levels to be aware of. But before that, let’s figure out the best direction to trade in the first place!
Chapter 5
Understanding Market Flow
This one concept alone has been the turning point for many, many traders that I’ve worked with. The following 2 figures illustrate the basic concept of market flow.
Figure 1 defines a swing low point and a swing high point. A swing low point is a low that has at least 2 consecutive higher lows preceding it and 2 consecutive higher lows following it.
A swing high point is a high that has at least 2 consecutive lower highs preceding it and at least 2 consecutive lower highs following it. This is what a swing high and a swing low look like:
Figure 1
When price is making lower swing highs and lower swing lows, this indicates that we may be in a downtrend, and the market flow is now down. Use this information on the hourly charts and higher if you’re day trading.
When the market is making higher swing highs and higher swing lows, this indicates that we may be in an uptrend, and the market flow is now up. Again, use this on the hourly charts and higher! In Figure 2 I’ve marked all of the swing high (SH) and swing low points (SL).
Figure 2
This concept of market flow can be very powerful, and the nice thing about it is that you can get a good indication of the market direction from pure price action alone (independent of any technical indicators).
Also, remember that longer time frames have power over shorter time frames, so, for example, if the market flow is down on the hourly chart, this is a more powerful indication of a down trend than just market flow down on the 15 minute chart.
When price is consolidating in a choppy sideways manner market flow is less reliable, and it’s best to wait for price to break one way or the other.
Chapter 6
Knowing Which Way To Trade The Top Down Analysis
This is by far one of the biggest reasons for failure that I see in most aspiring traders—failure to figure out which way is best to trade. With market flow, it really isn’t that difficult.
The first thing to understand is that higher time frames have more strength. The higher the time frame, the more strength it has. In other words, if a daily chart is going down very sharply, but the 5 minute chart is actually showing a rally, the daily chart is the winner. I can’t believe how many people I see, almost daily, trying to fight the bigger time frame.
So when you start your trading day, and let’s assume we’re talking about day trading, what you need to do is take a look at the higher time frames before you do anything else. I start by looking at the daily chart (and by the way I quite often check out the weekly and monthly charts). What is its dominant direction? What is the market flow on the daily chart? This is stronger than the market flow on the lower time frame charts. If it’s up, then my bias would be toward the buy side, even on smaller time frames.
Then I look at the 4 hour chart. Again, what is the market flow? If it is also up, then I’ll definitely be looking for a buy on the smaller time frames at an expected level of support, UNLESS I see that we’ve hit some kind of a resistance level on the 4 hour chart. And there may even be a resistance level hit on the daily chart, in which case, I’d be cautious about continuing to buy and be ready to go short.
If I do see a possible change in direction coming, I’ll go to the hourly chart and see if the market flow has turned down. If it has not, then the best strategy is to wait it out. An aggressive trader could go ahead and try shorting before getting confirmation from the hourly, but this is a more dangerous (risky) approach. Don’t ever be afraid to wait!
Of course the opposite would be for a selling scenario, where we would see the market flow on the daily and/or 4 hour chart down, and we’d look to sell rallies at an expected level of resistance.
Chapter 7
Understanding Key Price Levels
Of Support And Resistance
Key levels of support and resistance are really critical areas to watch because they tell you, in advance, where we can expect price to react (reverse). By knowing these levels, it gives you a price level to zero in on—a place where you want to consider a trade. Your ability to focus on these levels is, in large part, going to dictate the quality of your results. If you allow yourself to get pulled away to something else, you are headed for inconsistency in your approach, and lack of a consistent approach is one of the biggest trading mistakes a trader can make.
I want to re-iterate a point that I made earlier: Higher time frames have more strength. I’ll say it again: Higher time frames have more strength. Please make sure you really get this!
The worst traders I’ve seen tend to spend a lot of time on 5 minute and 15 minute charts. The really good traders are the opposite. They spend most of their time on the hourly charts, right on up to the monthly charts! They only use the smaller time frames for fine tuning their entry. Try it. You’ll be amazed at the difference in your results and you’ll also find trading to be a lot easier!
I would suggest 1 hour, 4 hour, and daily charts for day traders, higher if you’re trading longer term. There are a couple of different reaction points (key levels) to look for which we’ll cover now.
First, below you will see an example of where an old area of support was broken to the downside (Figure 3). By being broken to the downside, I mean that price broke below the support, and traded and held below that level. When you see this, you want to watch that level to become resistance once price goes back up to retest it, because this becomes a potential selling opportunity. It is known as a “key” level. Here’s what that looks like:
Figure 3
Of course the same thing applies to resistance levels. Once a resistance level is established and price breaks above that resistance level and holds above it, that level tends to become support, and a buying opportunity, if it gets retested.
Figure 4 shows an illustration of what that looks like, this time on a daily chart:
Figure 4
The other type of reaction to look for is simply when old highs or lows get retested. In the case of old highs being retested, look for those levels to hold once again, at least initially, for a sell.
Figure 5 shows an example of an old high being retested:
Figure 5
And the other key levels you want to keep an eye on are old support areas (Figure 6 below). In these cases, they present possible buying opportunities. Here’s what that looks like:
Figure 6
Now, it’s important to realize that we don’t just simply buy or sell at these levels. We have further tools to help us. And this is where technical indicators can be a help.
Chapter 8
Combining Key Levels In Price With Technical Tools
Now comes the juicy part. Rather than simply buy or sell at these key levels (and even that’s not bad!), when you combine these levels with other considerations, you can find some killer set ups. The tools that I like to use most are Fibonacci levels, including Fibonacci extensions, and pivot levels. For indicators, you can use MACD or Stochastic or RSI, or whatever you like, as you’ll soon see. But what I would recommend that you NOT do is use more than one indicator! More than that and you’re going to just cause clutter and confusion. Remember that price is the most important indicator.
FIBONACCI LEVELS
The following is an illustration of how Fibonacci retracement levels and extensions are calculated.
Please reference the chart below labeled Figure 7.
FIBONACCI PULLBACKS (BUYING):
IF BUYING: You always measure from a significant swing low, to the most recent high, from left to right, always. So in this case, you take the amount of pips or from A up to B.
Multiply that number by 38.2% and subtract this from B and you will get the first fib support number.
To get the second fib support number, take the same distance (A up to B), and this time multiply by 50% and subtract from B.
To get the third fib support number, take the same distance (A up to B) and multiply by 61.8% and subtract this from B.
For the final fib support number, take the distance A up to B and multiply by 78.6% and subtract this from B.
All of these numbers are potential support. If one of these fib numbers matches a pivot, then you have even stronger support. If one of these fib numbers matches an old high that was previously broken, then the number is also more significant. Of course if the fib retracement matches both an old high and a pivot, and you’re in an up trend, you have very strong support.
FIBONACCI EXTENSIONS:
Extensions are potential price areas of resistance when price is moving up. To calculate the extensions, which can be used as profit targets, you take the same distance as above, from A up to B, and multiply it by 1.27. Then you add this number to point A, and that gives you the first profit target.
Next, take the same move from A up to B, multiply it by 1.618 and add it to A. This gives you the next profit target.
In buying pullbacks, I have found it best to buy at either the 50, 61.8, or 78.6% retracement level, depending on the risk. This is because your stop should at least be below the 78.6% level, and preferably below the low at A. When you wait for these bigger pullbacks, your stop loss is less and your profit target is bigger! It is also very advantageous to buy at a fib pullback level that matches up with either an old high, or a pivot point, or even better yet, both!
Figure 7
The following explanation refers to the chart below labeled Figure 8.
FIBONACCI RETRACEMENTS (SELLING):
IF SELLING: You always measure from a significant swing high, to the most recent swing low (from left to right, always). So in this case you take the amount of pips from A down to B.
Multiply that number by 38.2% and add this to B. You will get the first fib resistance number.
To get the second fib resistance number, take the same distance (A down to B), and this time multiply by 50% and add this to B.
To get the third fib resistance number, take the same distance (A down to B) and multiply by 61.8% and add this to B.
For the final fib resistance number, take the distance A down to B and multiply by 78.6% and add this to B.
All of these numbers are potential resistance. If one of these fib numbers matches a pivot, then you have even stronger resistance. If one of these fib numbers matches an old low that was previously broken, then the number is also more significant. Of course if the fib retracement matches both an old low and a pivot, and you’re in a downtrend, you have very strong resistance.
FIBONACCI EXTENSIONS:
Extensions are potential price areas of support when price is moving down. To calculate the extensions, which can be used as profit targets, you take the same distance as above, from A down to B, and multiply it by 1.27. Then you subtract this number from point A. That gives you the first profit target.
Next, take the same move from A down to B, multiply it by 1.618, subtract it from A. This gives you the next profit target.
In selling the retracements, I have found it best to sell at either the 50, 61.8, or 78.6% retracement level, depending on the risk. This is because your stop should at least be above the 78.6% level, and preferably above the high at A. It is also very advantageous to sell at a fib retracement level that matches up with either an old low, or a pivot point, or even better yet, both!
Figure 8
Chapter 9
Using Pivot Levels
Pivots are mathematically derived points that are pre-calculated using prior data. Pivots are another source of support/resistance, just like Fibonacci levels, that tell you in advance where to expect support or resistance. Again, like other tools, you want to use pivot information together with other known points of support and resistance such as Fibonacci levels and prior highs/lows. Where you find these levels all matching up at one price area, you have a trading opportunity!
If price is trending up on the higher time frames (and you are therefore looking to buy the dips), then it’s very useful to know where price should find support when it pulls back. Pivots are definitely worth watching.
I even like to watch weekly pivots and even monthly pivots. If these pivots also match up with a particular expected level of support or resistance, it makes that level just that much more important.
For daily pivots, you want to use a 24 hour period, and they can be calculated in a number of ways. Some people like to use the 24 period from midnight eastern time to midnight eastern time (these are the ones I use). These pivots do tend to work very well for the London and NY sessions of the forex markets. Others prefer to use the 24 hour period from 5 pm eastern time to 5 pm eastern time. That’s fine too, and these would probably be more beneficial during the Asian session trading of the forex markets since it takes into account the most recent price action. Still others prefer the midnight GMT to midnight GMT pivots. These are also quite effective during London and NY. There is no right or wrong answer here, so don’t get too hung up on this.
As a general rule, when price is at or above the central pivot point, we are considered to be in the sell zone. When price is at or below the central pivot, then we are considered to be in the buy zone. There are 4 pivots to watch for above the central pivot, and 4 pivots to watch for below the central pivot.
However, that is a general rule, but the more important factor is what the higher time frames are telling you. For example, if the higher time frames (4 hour, daily charts) are showing that we are in a strong down trend, then what can happen is that once price breaks below the central pivot and other pivots that are below the central pivot, and price trades and holds below those pivot levels, then the pivots can act as resistance levels once price comes up to retest them. You would then use support and resistance information described later on to determine if you should indeed look for a sell in cases like this. Of course the opposite is true when the higher time frames are all heading up.
The way that pivots are calculated is by taking the highest high, lowest low, and the closing price of the 24 hour period you’re using. (Some calculators require that you put the opening price in as well, although it’s not actually used in the calculation).
You then plug these numbers into a pivot calculator and it will generate all the pivot levels for you. These pivots are for use the following day and you can plot them right on your chart.
For weekly pivots, just take the open, high, low and close of the week, plug those in, and you’ll get the weekly pivots for the following week. You’ll only need to do this once a week on Friday after trading has closed.
For the monthly pivots, take the open, high, low and close of the month, plug them in to the calculator, and you’ll get the monthly pivots for the following month. Of course you only need to do this once at the end of each month.
For a pivot calculator, just go on line and do a search for pivot calculator and you’ll find lots to choose from.
Soon I’ll show you how to put all of this information together to find great places to take trades.
Chapter 10
Trade Entry, Stop Losses And Profit Targets
The following information is really important, so get comfortable and read this carefully. Getting into your trade properly can be all the difference between being profitable or not. Managing it properly after you’re in, is absolutely critical.
Let’s say I’ve done a thorough top down analysis and I’ve determined that the best direction to trade would be up. In this case my thinking is very simply “buy the dips”. And where do I want to buy? I want to buy at support. And where would I expect there to be support? At key levels from the higher time frame charts (hourly and higher) especially where those price levels correspond with Fibonacci levels and/or pivots.
The beauty of doing an analysis like this is that you can identify, in advance, where to expect support! What that allows me to do, is simply enter a limit buy order at the support level I’ve identified. And at the same time I can enter my stop order, again, in advance.
Figure 9 below is a 4 hour chart, and you can see that price broke above a prior area of resistance after holding below it for quite a while. Notice too, that the market flow is up.
Figure 9
Now let’s take a look at the hourly chart.
Figure 10
After price broke to the upside and traded and held above the old resistance level, you want to get ready for the possibility of a buy if price comes back to re-test the old resistance level. After a high was established at point B, price finally started to drop. However, the case for making this trade is strengthened greatly by the fact that the 50% Fibonacci retracement level of the swing from A – B fell at almost exactly the same price level as the prior resistance! Notice that we knew about the strong possibility of this being a strong support level well before price ever got there!
So the way to trade this is to simply put in an order to buy at this level before price even gets there! And this can be a scary thing if you’re not used to it. But it’s actually a fantastically good way to enter a trade because you can define your risk quite well, get a lower buying price, and have an objective way to measure your profit potential (the 127% Fibonacci extension).
The stop can be placed below the next lowest Fibonacci level (the 62% level in this case). This would mean a stop loss of about 50 pips, which may seem large, but you have to consider the risk vs. the reward. And if you do have to place a stop loss 50 pips away, it’s really no problem as long as you remember to reduce the amount of lots you’re trading in order to keep the overall account exposure to no more than 1 ½ - 2%.
The reward potential on this trade, however, was over 300 pips up to the 127% Fibonacci extension of A – B. Now, as you can see, price didn’t go that far up initially and got rejected quite strongly at the old high at point B. So in real time you need to have a game plan, so let’s talk about that now.
Once we are in the trade, our job becomes one of trade management which we discussed at the beginning of this course.
As price moves in our favor, the idea is to both reduce risk and take profits. There are no hard and fast rules on this. Everyone is going to do it a little differently based on their own risk tolerance. I’ll give you some general guidelines that I’ve found very useful.
As price starts moving up, watch for resistance levels to be hit. When that happens, start reducing risk slowly and/or taking profits. Remember that we’re on an hourly time frame here, and also, a volatile environment at the time of this writing. So you need to give price room to move around a bit. Resistance areas are such things as pivots, Fibonacci support levels as price moves up (as measured from B up to the swing low points that formed at support), and of course, old highs and lows.
It’s a good idea to actually take partial profit and move your stop up so that you can get a risk free trade. For example, if you had an initial stop loss of 50 pips, and you identified a resistance level at the 50 pip profit level or more, then if you covered half of your position at 50 pips, you could then move your stop to break even. The green line on the chart is the daily central pivot point, an excellent place to consider taking some profit (over 50 pips).
Or, you could keep a 50 pip stop loss on the remainder and the worst that could happen is you’d break even. But at least you’d get a free look at a 300 pip move.
Alternatively, you could take half the position off for a 50 pip profit, then move the stop on the remainder to, say 20 or 30 pips. That way even if you were stopped out on the remainder, you’d still have a profitable trade. Another great place to consider taking profits is at the high at point B, since this is a known area of resistance. In this case the profit at the point B was almost 200 pips.
These are just a few ideas for you to consider, but as you can see there are all sorts of ways to handle these trades.
Chapter 11
Using A Technical Indicator
Let’s now take a look at how we can use a technical indicator to help confirm a trade for us. In the previous example, I’m going to put a Slow Stochastic on the chart, and we’ll use the values of 9,3,3. This information is shown in Figure 11 below:
Figure 11
Now you can see that by using the stochastic, rather than take every signal, you can pick out only those ones where the price not only hit our price support level (our key level) but was also showing overbought on the stochastic. You’ll find that this will greatly reduce the number of trades you take and allow you to be far more selective. Less trading is a good thing by the way.
I’ve marked an X on the chart where the overbought stochastic corresponded with price hitting support. So we had a triple confluence of independent factors all telling us to buy! These were: a 50% Fibonacci pullback, former resistance now becoming support, and an oversold stochastic!
Please Note: NEVER use an indicator all on its own. For example just because stochastic is overbought or oversold it does NOT necessarily mean price is going to turn around and go the other way!! Make sure to get at least 3 independent reasons to expect support or resistance. If you look to the left on this chart you can see that if you bought every time the stochastic indicator was oversold, you would have lost heavily!
But the way I showed you above is a very effective way to use the stochastic indicator. By waiting patiently for these types of set ups, you are really giving yourself a very good chance at a profitable trade. If the trade does not go in your favor, it should never be a problem if you’re managing your risk properly!
Just to recap, the first thing you need to do is figure out the best direction to trade using price action and market flow information from the higher time frame 4 hour and daily charts. Once you’ve got that established, then for day trading go to the hourly and look for price levels to trade at that are in conformity with the direction that the higher time frames are calling for. And of course make sure you’re at an expected area of support or resistance based on key levels, fibs, and pivots.
Even if you are taking shorter term trades, using 15 and 5 minute charts, you should still keep trading in the direction dictated by the higher time frame charts. Use the same information to make a trade, ie, former highs/lows, Fibonacci levels, pivots, and stochastic overbought/oversold.
Chapter 12
The Role Of Fundamentals
Fundamentals are very important in that they are what ultimately determine which way a currency pair, or any other market, is going to move. In the currency markets, things such as interest rates, economic climate, geo-political considerations, etc will all play a role in currency valuations and fluctuations.
However, one of the beauties of technical analysis is that everything that is happening fundamentally is revealed by price. In other words, the charts tell all. You will also find that, on a longer term basis, price will tend to react before the fundamental reasons are revealed, often months ahead of time.
The approach I advocate is to trade technically at all times, no matter what you or anyone else thinks is going to happen from a fundamental viewpoint. The only thing that is real and absolute is price. By using technical analysis and reading charts properly, watching market flows etc, we can align ourselves in the direction of least resistance. And if the trade is aligned with the fundamentals of the currency that you’re trading, so much the better!
The one thing that is extremely important, though, for day trading purposes, is the release of fundamental news announcements. These include things like the non-farm payroll report in the U.S., retail sales numbers, consumer price index, interest rate announcements, GDP, etc. When these numbers are released, they can really rock the markets, and you can take terrible slippage on your fills (the difference between the price you wanted and the price you got). Brokers do NOT guarantee prices during these times. So I would highly recommend that you do NOT trade during any major news announcement.
Stay tuned to what’s happening throughout the day. Circumstances can change and may preclude you from taking a trade that you would have otherwise considered.
There are several excellent sources for fundamental announcements. A couple that I use all the time are www.forexfactory.com and www.dailyfx.com. I also like to check in at www.bloomberg.com before I trade so that I’m aware of anything major happening before I trade.
Chapter 13
Putting It All Together Trade Illustrations
Let’s now have a look at trade set-ups that provide ideal trading situations. Look for these types of set-ups constantly. In fact, you may even want to focus in on just one currency pair. Don’t be in such a big hurry to trade all the time, if that’s an issue with you. There are lots of opportunities that come along that give you a really good chance to make money, so why fool around with the “iffy” stuff? That’s going to mean sitting back and watching as price makes lots and lots of big moves without you! Always keep in mind that you do NOT have to trade a lot to get a staggering return on your money. Wait around for the good set ups! Okay? Promise?
EXAMPLE 1
The following chart in Figure 12 is of the EUR/JPY currency pair. First I want you to take a look at the daily chart coming into the trading day. On this chart, I’ve marked off the swing highs (SH) and swing lows (SL). Notice that since the swing low was broken to the down side, there has NOT been a swing high broken. So, the market flow remains down. For the market flow to change to up, the most recent swing high (fourth candle in from the right side) would need to be exceeded. So this is a very negative chart!
Figure 12
Now the next chart, Figure 13, this is a 4 hour chart. Again, I’ve marked the more recent swing highs and swing lows. In this case, the market flow is actually up. So remember, which chart has more strength, the daily or the 4 hour? The daily! Not only that, but I’ve drawn a line across the bottoms of the bodies of the candles that offered support (around the point marked X) and extended it to the right, because this becomes a potential resistance price level.
So just because the market flow is up on the 4 hour, we have to give more weight to the fact that the market flow is down on the daily and we’ve hit potential resistance on the 4 hour. Not only that, note that the stochastic indicator is very close to the overbought level. Here’s what the 4 hour chart looked like:
Figure 13
Now, take a look at the hourly chart in Figure 14. Things start to get pretty interesting. There is a ton of stuff going on here, and by that I mean there are a lot of confluences all pointing to resistance holding on the right side of the chart. Let’s have a look at all the different factors.
First of all, I’ve drawn a solid black horizontal line across the chart at a price level that was initially support (on the left side of the chart). Then once it was broken to the down side and price traded and held below that level, it became resistance when price went back up to re-test it, and price dropped again. Later on, price made another attempt to break this resistance level. Notice that this potential resistance level is also now a 62% Fibonacci retracement level from the high at A down to the low at B. Not only that, but this level is also a 127% Fibonacci extension from the low at B up to the wave high at C. These numbers all matched up almost exactly!
For the icing on the cake, you can see that the stochastic is well into the overbought zone (the red dotted line). Actually, if you look carefully, you’ll see that when the stochastic was overbought a little earlier the price at the same time was hitting resistance caused by some prior lows. Even these moves were worth a lot of pips. Although they didn’t have as many coincidental points of resistance as the 62% retracement area. Very powerful information, as you can see.
Here’s the chart:
Figure 14
EXAMPLE 2
This next example is of the GBP/USD currency pair shown in Figure 15. Again, the daily chart is shown first. You can plainly see that the market flow has just turned down again, as price broke below the most recent swing low several days prior. By the way, you can also see how the prior support became an area of resistance once it was retested, sending price straight down!
Figure 15
Now, after the market flow turned down on the daily, take a look at the 4 hour below in Figure 16. Notice that the market flow was down, and also price had broken below support, then held and traded below that level for some time. That old support level now becomes a potential resistance area if price goes back up to re-test it.
Figure 16
Going down to the hourly chart shown below in Figure 17, you can clearly see that the old support level was finally broken, price traded and held below that level, then came back up and retested those lows. This is where you want to look to sell. Not only was it up against old lows, but it was also hitting the daily central pivot point at the exact same price level! This was also around the 38% Fibonacci retracement level. Once again, at the same time this was happening, look at how the stochastic was in the overbought zone. Time to sell!
Figure 17
EXAMPLE 3
For our final example, we’ll go to the EUR/USD pair. This trade actually set up on the day I was completing this course, and was just another great example of how to trade support/resistance levels.
First of all, here’s what the daily chart looked like in Figure 18 below. Obviously the market flow is down and this is a very negative currency pair. The easy money is made by shorting this pair!
Figure 18
Now drilling down to the 4 hour chart shown in Figure 19 below, things set up just the way we like to see them. The market flow was down. Price initially held at the area market as support, but finally broke below, and traded and held below, then returned back up to the former support line, which now becomes expected resistance!! Take a look:
Figure 19
On the hourly chart show below in Figure 20, everything came together very nicely. With the support (now resistance line) at the exact same place as the daily central pivot point, this was also the exact same price level as the 50% Fibonacci retracement shows. The market flow was down on the hourly chart.
It’s true that the stochastic didn’t quite reach the overbought levels on the hourly chart. However, in the context of the bigger trend (daily and 4 hour charts), plus the great confluence of reasons to sell as stated above, this was an excellent opportunity.
I’ve included a 15 minute chart, seen in Figure 21, after the hourly so that you can see the additional reasons for selling this currency pair. But first let’s check out the hourly chart:
Figure 20
Going all the way down to the 15 minute chart, it was very overbought. In fact, we had stochastic divergence, meaning that price was going higher and higher. But the peaks in the stochastic waves were trending lower. The other thing that showed up on the 15 min chart is that by measuring the Fibonacci retracement levels using not only the swing high that was used on the hourly chart (market point A), but also the visible swing high on the 15 minute chart (market point B) down to the same common swing low at point C, the Fibonacci levels overlapped! In other words, from A – C we got a 50% Fibonacci retracement. From B – C we got a 79% Fibonacci retracement, and we also noted earlier that this was the same price level as the daily central pivot point!
Looking down at the stochastic, notice that price kept going even higher after the stochastic had peaked out. This is another sign of weakness in price. But rather than use it on its own, which is not very effective, combine it with what you’ve learned about support and resistance for much better reliability. Here’s the 15 minute chart:
Figure 21
Chapter 14
Closing Comments
At this time, I’d really like to thank you for getting this course and to once again, congratulate you for taking the necessary steps to help avoid the many common mistakes that traders make. As I told you at the beginning of this course, I have been trading for a very long time and am very familiar with the problems that traders have. Most importantly, I know how to point them in the right direction. Of course that doesn’t mean they’re going to go in the right direction because it’s going to be up to individual focus, determination, consistency, proper application of risk management, etc.
You should find these basic trading concepts very useful. Some of the people that I’ve coached have gone on to become full time traders, making extremely good living right from home, using exactly what you see here. But it certainly hasn’t happened to everyone. Yet everyone has been given the same information. The difference is in the application. Give this a chance, or more importantly, give yourself a chance by diligently following and applying what you’ve learned in this course.
I would encourage you to re-read this material many times over. Repetition is absolutely essential if you want to get good at anything. Practice applying these ideas until they become second nature. Treat trading with a lot of respect, adhere to the money management principles that were discussed, and be patient, disciplined and consistent.
You’ve probably heard those words before, but I have to say it again: I’ll guarantee you that if you fail to follow a consistent approach, and jump around from one hot system to another, you’ll never make it in this business.
Trading is a lonely business, and when it’s just you and your computer, and no one else is around, it’s all up to you. Don’t cut off the tremendous possibilities by self-sabotage. Be good to yourself, give yourself a fair chance, and do the very best job you can—you deserve success!
Congratulations again, I wish you the very best in your trading!
Vic Noble
