Trading at Strong Areas of Resistance

Filed under: Learn Forex Trading |

Anyone who has been studying the art of trading for a while, and particularly in the forex markets specifically, will know that areas of support and resistance are key for finding high probability trade setups – and I have a good example for you of this in today’s forex-related article.

 

Figure 1.

Figure 1.

If you take a look at Figure 1, you will see a daily chart for the EUR/USD pair in 2008 (traded on Forex Tester). At the top of this chart, you will see a horizontal red line. This is the area of resistance that, until then, price had not been able to break through. After two failed attempts at breaking through this level, any knowledgeable trader should be keeping a close eye on this area as price approaches the level once again. And almost predictably, price formed a nice bearish engulfing pattern, signalling a change in market sentiment. It was here that I put an order in to go short just a few pips below the low of this bearish candle, with a stop loss placed just a few pips above the high of this bearish candle, and with a final target of two times the risk.

 

Figure 2.

Figure 2.

Figure 2 shows how this one played out. The order was filled, and price moved down very nicely with a couple of very large bearish candles. When the white bullish candle formed after these bearish candles, I moved the stop loss to just a few pips above the high of this bullish candle, and this stop was soon hit for a profit of 1.4 times the risk. So was this the right place to exit this trade? You bet it was! Figure 3 shows that from this point on, price just keeps rising, and rising… and rising.

Figure 3.

Figure 3.

 

Well, that’s it for this week. Have a great weekend and I’ll be back next week with yet more forex trade examples and articles.

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