Waiting For Confirmation Signals

Filed under: Learn Forex Trading |

As I currently have no trades or orders in play, I will today talk you through exactly how I look for price action confirmation signals before entering a trade.

 Picture 1

If you take a look at Figure 1, you will see the 4-hour chart for the EUR/USD forex currency pair (which is the pair for the euro and the United States dollar). What you can see here is that price has been moving up, and the last high, which was a good level of support/resistance (marked in on the chart with a green band) has now been broken through. The crucial thing when a significant area is broken through is that the candle closes above this level – otherwise, a pin bar rejection candle could be in the making. Now that price has broken through this level, what we are doing is looking for any retracements back down to this level. Levels of previous support/resistance are often respected on the higher timeframe forex charts, and we need to use this to our advantage. Moreover, previous levels of resistance often become new levels of support.

 

What we are doing here is waiting for price to come back down to this level, and then react to it in some way. For example, if a pin bar or a bullish engulfing pattern formed right at this level, this would be a good indication that this bullish trend is set to continue. Over the next couple of days, I will be on the lookout for any such signals, and if they occur, I will be putting an order in to go long, with a stop loss placed just below the low of the move and a target of at least two times my risk. However, whether this scenarios pans out remains to be seen.

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