Author : , Date : 9 May, 2016

Price Action Strategy that works

Hello Everyone,

In today’s article we will discuss binary options strategies that the big boys don’t want you to know. So please empty your cup, fasten your seat belts because the aim of this article is to shift your mind for a better trader.

As discussed in a previous article …..  Psychology plays a big factor in your trading journey. Thus, in order to succeed you have to believe that “YOU CAN” and act like you do. “Those who believe they can do something, and those who believe they can’t are both right.Henry Ford”
We don’t believe in the word “Fail”. People do not fail getting what they want in life; however they just “Quit”.
For example, people don’t fail at school, they just quit studying. People don’t fail playing piano, they simply quit practicing and so on.
Same rule applies for online trading; people don’t fail in online trading, they just “Quit”: They stop learning and practicing.

We believe that there is no such thing called “Holy Grail” so stop searching for one; and if you find it please don’t send it to me. The holy grail of online trading is your skills and eyes; technical analysis and price action.

Now and after you have had the right mindset; let’s get started.

Step 1: Always look to the big picture to identify main trend as well as support and resistance key levels.

Let’s say you want to take your decisions on the 15 or 30 minutes timeframe; before taking any action you will have to shift to the 1 hour timeframe so you can see the big picture of that specific asset.

Step 1

Remember: Everything is Relative. There is no Lowest or Highest price.

step1-1

 

Here is an example:
Now we are looking at EUR/USD 1 hour timeframe.

a- Identify the main trend:
Remember the famous saying “The trend is your friend”. So before taking any action we will have to identify the general and main market flow. A way to do this is by simply adding large periods “Moving Averages” but we personally prefer non-horizontal lines. After drawing the purple line it becomes obvious that this is a Bearish (downward) trend because the line is pointing down by forming lower highs and lower lows.
How did we draw that line? Simple connect the outer (larger) swing high (tops).

This gives us a hint to only look for down (SELL/PUT) positions because our friend (main trend) is going downward. Thus, we ignore all up (BUY/CALL) positions for now no matter how good the signal was; the market is going nowhere and there would always be other opportunities.

Remember: Staying out of the market is also a position.

b- We draw key support and resistance levels:
How did we draw those lines? Simply by connecting the dots. Remember when we were at the painting class at school; one of the very first tasks was to connect the dots.

Here is how we did it here. We connect bottoms and tops. As we all know that whenever we have 2 dots we can draw a line. In this example we used the black rectangle to show you the bottoms and tops used to draw the horizontal lines and the red circles to show the tops used to draw the non-horizontal purple line. The strength of the line depends on the number of the connected dots. The more dots connected the stronger is the line.

For example: The blue line is drawn by connecting 5 dots (bottoms/tops) while the green line is drawn by connecting 2 dots (tops). From this analysis we can conclude that the blue line is way stronger than the green line; thus the blue line will be respected more by the price.

c- We adjust those levels to round numbers:
For example: If we want to connect the bottoms of green horizontal line; it would be around 1.14464. However we adjusted it to a round number 1.14400 because “psychological levels” proved to have more impact on the price (most traders usually prefer to set a round numbers for “stop loss” and “pending orders”). We will write more about round numbers and psychological levels on the upcoming articles.

Step 2: Zooming to smaller timeframe.

step2

As we can see, the price is flying between the blue and red lines. The blue line is the support line that is holding the price from going down while the red line is the resistance line that is resisting the price from going up. For now our area of interest is between the blue and red line. Now and after we had a look at the big picture, we dive into a smaller time frame such as 15 minutes.

Currently the price is between the resistance and support range. Also known as “Dead Zone”, “No Fly Zone” and “No Man’s Land” because the price currently has no clear direction.

The general strategy here is to wait for the price to touch one of those two lines, get extra confirmation and then make a trading decision.
Remember: As we already discussed, in similar cases we need to disregard (CALL/BUY) signals because the main trend is DOWNWARD.
Step 3: The Signal.

After around two hours, the price went up to touch the resistance red line giving us a hint that the price might reject and go down.
However, as we said earlier, we need extra confirmation because there is still a high probability that the price might not respect the resistance and break out of the range zone.

step-3

So let’s start looking for clues:

As you can see, there is an intersection between the purple non-horizontal line and the red horizontal line.
One more confluence is the long upper wicks (shadows) that are touching the line.
This price action gave us extra confidence that the buyers are weakening and the sellers are not allowing the price to move higher and cross that line.
To us, the inspectors, three clues are more than enough to take a wise decision.
Signal = (Horizontal resistance + non-horizontal resistance + long upper wicks) = High probability downward movement
Step 4: The Result.

As expected, a clean downward movement…
Thus, in this case any expiry above 15 minutes and up to 4 hours or more would be a Win.

step-4

In conclusion, “price action is king”; even though no one can be 100% sure what would happen next in the market, but technical analysis provides us with a clear understanding of the market to objectively find clues and areas of confluence to make the odds in our favor.

One crucial key to success in online trading is a well-defined tested strategy proven to have a win rate of at least 70%

Remember: The 6P rule –> Proper Prior Planning Prevent Poor Performance.

Always put your strategy on action by testing it on demo account first for at least 100 trades. (You should get above 70/100 win rate) Then you are ready to apply it on real accounts.

Remember: Never invest money you can’t afford to lose.

Wish you green pips and a fruitful trading journey.

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