Good morning traders. I trust you all had a great weekend.
Before we get into today’s S & R levels and my take on the bigger picture I want to give you an update on how well the levels I post each day work or if indeed they work at all.
As with every aspect of trading, there is always a great deal of debate about how to trade; what strategies work and which don´t, when and what to trade, what risk management criteria you should apply, how you should measure performance etc. The list of topics is endless. Probably the only issue that is not up for debate is that there are many ways to skin the proverbial cat.
In which case I´m not going to get into the detail of exactly what you should do or how, but I do want to show that using the levels I post should give you a good guide to developing a strategy that will bring you success as a trader.
A Level Headed Strategy
I have a set strategy that is very specific to how and when I trade my levels. But I know there are many readers who are not in a position to trade full time as I do. In which case I´m not going to be prescriptive, suffice to say that you should be trading these levels with some form of strategy that works for you.
Consequently, I have done some quick analysis based on the days when I have specifically posted 1 to 3 S & R levels i. e. from from the 14th November to the 7th December.
From a basic eyeball analysis of the charts, you should be able to see that these levels are where the market moves to and or from. They are reaction points/levels in the charts. Therefore it makes sense for you to be focusing your trades at these points as they have a good chance of making you money.
That´s not because I posses any unusual level of trading foresight or predictive capability, its just that markets at the basic level, move from support and resistance.
I´m not going to get into why – other than to say that day traders look for and hunt down liquidity. Why this happens is for another day.
What is important and probably the only thing that matters is that this happens time and time again enabling us to use this ´predictability´to focus our attention on where we want to take trades.
All well and good you might say but how can I develop a strategy around these levels that gives me a consistent positive return on my investment. So what I´ve done is to create a few simple rules as follows:
- I take the first level that´s ´hit´either S or R each day and fade the level (long from support, short from resistance)
- I use a 13 pip stop (mine is 10 but I´ve increased it slightly to account for a wider spread)
- If I lose the first trade, I will trade the next level.
- If I lose the second trade I stop for the day.
- When my level holds I let it run aiming for at least 2x my risk (i.e. 26 pips)
Based on this simple plan of action the following results were achieved.
- total no of trading days = 18
- total no of winning days = 10
- total no of losing days = 6
- total no of days no trades set up = 2
- total pips won = 260
- total pips lost = 130
- total positive return in pips = 130
As you can see, simply using a straightforward ´automatic´ approach as above with no trade management other than what the rules allow, delivers a winning strategy.
Of course this is just a small sample set and not a statistically rigorous analysis but what I´m trying to show you is that even with a simple approach, levels work.
If you have time to manage your trades during the day on the lower time frame charts as the price action unfolds you can achieve much better results.
For example, managing your winning trades without automatically cutting at +26 you could have made net 435 pips – more than three times the amount made by using the strict rules.
I´m not trying to provide you with a ´set and forget´strategy here. All I aim to do is to make it clear that focusing on the levels is a good way to make money trading.
I encourage you to look at the charts and the levels yourself and work out a method that suits your circumstances. You have to engage to be a decent trader and to be prepared to do the work yourself. By doing so you will build your confidence, form a plan and most importantly, trade it!
I hope the above gives you at least some food for thought.
If you want further information or to learn exactly how I trade just email me at email@example.com
Ok whats up for this week and today.
The Daily Chart
It has been a pretty contained few weeks in the markets with no real breakout up or down the chart. This is not surprising given the level of uncertainty and event risk.
The key things that we need to watch from a macro perspective right now are:
- Brexit – the meaningful vote is slated for the UK Parliament tomorrow the 11th Dec. although it could still be delayed.
- US inverted yield curve – this has been gaining in significance all last week as it tends to herald coming recession – i.e. risk off.
- Trade ´war´ – continued uncertainty especially post the Huawei arrest
- Italy and now France – while different issues they both help to potentially weigh on the eurusd.
- ECB Rate decision and minutes – due on Thursday 13th the language, forecast and press conference will set the tone either dovish or bearish.
All or any one of these issues has the potential to boost or sink our pair.
In terms of the chart we look to be about to test the 1.1450 level which remains the key pivot right now to suggest whether or not our head and shoulders pattern is going to play out.
The Hourly Chart
As I write the hourly is at 1.1437 after a strong open Sunday evening. This suggests a test of 1.1450 is on the cards and whether we get a close above will help to define direction for the week. Also we have opened the week with an hourly close above the descending triangle top trendline I mentioned last week. This is positive for higher prices but we do have the ECB Thursday and the Brexit vote tomorrow, both of which could impact considerably.
As ever and noting the above trade at the levels and at all times keep a level head!
Have a great week.