November 6, 2015 at 1:20 pm
Lately, I have come to realize that a lot of traders struggle to find trading opportunities when trading with a naked chart. This is because there are no set rules when trading with price action as there is when trading with a system that uses indicators.
As you all probably know by now, I’m a big advocate of using price action combined with technical analysis to trade. Believe it or not, I also struggled to find trading opportunities when I stopped using indicators. I stared at charts for hours and hours just watching what the market does at certain levels. I slowly but surely started noticing “patterns” that occur in the market. After a while, I could pinpoint where the market will have a reaction. I thought to myself, am I just lucky? As time went by I started getting better and better at spotting levels and trading opportunities. I can say with 100% certainty that there is no indicator out there that can beat price action and “screen time” when it comes to trading. If you put in the necessary time and effort you will succeed!
Let’s take a look at the EUR/USD 5-minute chart. On this particular day, the market was in a trading range. This is a perfect market condition to trade using support and resistance levels. Supply and demand levels also work great in these conditions.
I spotted a nice support and resistance level the day before this particular trading day. Unfortunately, I could not fit everything into the chart. Anyhow, I inserted arrows on the chart each time the market touched this level and rejected it. There were 11 trades in total that you potentially could have taken. There were other smaller support and resistance levels also which you could have traded.
Figure 1 – Trading Opportunities
I marked off a good supply zone that provided two perfect put trades. This was a high probability setup. Firstly, we saw that the market broke the previous lows AND the support/resistance level when it initially came out of the supply zone. This tells us that there are some big orders at that level. Secondly, support and resistance levels generally act as a “magnet” for price. In this case, when the market entered the supply zone, big sell orders were sitting there, and the market was attracted to the support level just a few pips away. This was an A+ setup in my book.
I only caught two trades from the support and resistance bounces and one trade in the supply zone. So in total I got three trades that I was more than happy with. It is not necessary to catch each and every trade in the market. Go to your charts and see how price reacts to different levels.