Hey guys, so let me ask you something: howmany of you are trading with the previous day high and lows added on your charts? My guess is that only a small minority ofyou are paying attention to these levels.
If you add the high and low of the previousday on your charts you can see that the market is often reacting to these resistance andsupport levels.
These two lines, the previous day high andlow represent one of the most important levels for today’s price action.
In this video I’m going to show you an easyintraday trading strategy that will help you enter the market around areas of strong supportor resistance, with narrow stop losses and excellent profit targets.
This strategy is mainly based on finding confluencearound previous day’s highs or lows.
The previous day’s highs and lows are oneof the most common and reliable support/resistance levels.
They work because they’re visible withouttraders having to use any particular indicator.
They’re obvious to everyone looking at aprice chart.
These levels work because the masses of peopletrading the market respond to them on a daily basis.
The beauty of these levels is the fact thatyou can use them both in trending and ranging markets.
In an uptrend, you will often see than theprevious day high, will serve as a strong support for the current day, as you can seeon this apple chart.
In a downtrend, the previous day low willoften serve a reliable resistance area for the current day, like in this Exxon Mobilechart.
During a ranging market, you will often seethe price reacting to both levels.
Paying attention to these levels will allowus 2 things.
We can easily identify potential breakoutareas but we can also take trades when the market is not moving in a clear defined trend.
I prefer to increase my chances of enteringin high probability areas, so i always look for confluence on my charts.
That’s why, I add the Bollinger bands forthis setup.
I often use the Bollinger bands with a 50period moving average and a 3 standard deviation because almost 99% of the price action iscontained within the standard deviation of 3 of the Bollinger bands.
I prefer to trade with the odds in my favor, and if a standard deviation of 3.
0 will offer me around 99% certainty that the price won’texit the Bollinger bands, then I will be interested to trade only with this setup.
Bollinger bands serve as a pretty accuratedynamic support/resistance indicator, and the price barely exceeded the bands.
In a ranging market, I want to see the bandsnarrow and parallel.
From my experience, this pattern is quitereliable when there is no clear trend on the market.
The price will often touch the lower and theupper Bollinger bands, and the middle band will also serve as support and resistance.
In a trending market, the price will oftenstay between the middle line and the upper or the lower Bollinger band.
In this example, we have a clear downtrendand the price stood most of the time between the middle line and the lower Bollinger band.
So, how do we combine the previous day highand low with the Bollinger band.
Very simple, we search for confluence areasbetween them and we trade when the price action is near, or ideally touches the confluencearea.
The most reliable signals appear when themarket is in a range.
Here is the area of confluence between theprevious day low and the Bollinger band.
The price was trading in a range, in a weakuptrend, if we took into account the higher highs and the lower lows.
The signal appeared when the price touchedthe previous low and the lower Bollinger band.
In addition, we have the previous resistance, became support after the breakout, so we had 3 major forces around that area.
This was a high probability buy signal, witha stop loss below the confluence area.
Regarding the take profit zones, there area couple of alternatives.
You could aim for a 2:1 risk reward ratio, or you can target the upper Bollinger band.
The third choice would be a breakeven stoponce in profit for a risk free trade.
If you chose the third option with a breakevenstop, be prepared to be stopped out often from your trade, but once you will catch agood trend, this will make up for all your breakeven trades and more.
Here’s a short trade.
In this chart we have a clear range, withno trend whatsoever.
And here is the confluence area between theprevious high and the upper Bollinger band.
Once the price touched the confluence area, the sellers immediately gained control of the market and pushed the prices down.
There are 2 types of entries here: an aggressiveentry when the price touches the Bollinger band and the previous high (which is whatI prefer), or a conservative entry after you get some sort of confirmation of rejectionfrom that area.
In this case, you wait until the red candlerejected the confluence zone.
Let’s take another example and by now ihope you comprehended how the signals work here’s a quick exercise: can you determinethe best entry on this chart? You have 5 seconds.
Here it is, the low of the previous day, thelower Bollinger band, and the clear rejection of that area.
The wick of the rejection candle confirmedthat buyers entered the market, and pushed the price to the upper side of the Bollingerbands.
The same setup on another chart.
We have a range within a weak uptrend, afterhigher highs and equal lows.
The price touched twice the previous day low, forming wicks on the rejection candles.
The price took off and reached the previousday high and the upper Bollinger band.
Now, there is another type of signal, whichis riskier, in my opinion, and it appears when the market is trending.
If in the previous examples we were takingsignals inside the range of the previous high and low, between the 2 extremes of the previousday, this time we search for entries when we have a breakout of one of these levels.
So, in this example we have a clear downtrend, the price recording lower lows and lower highs.
Here, the price broke the previous day low, so the alternative of trading inside the range was gone.
Once the price returned to the breakout level, at the low of the previous day, we had an opportunity to short the market, because themiddle Bollinger band acted as a dynamic area of resistance.
As you can see the price formed another downwardswing before it finally reversed.
Let’s take another example.
Here is a perfect buy, right to the pip.
We have a clear upward trend, with higherhighs and higher lows, the price broke the previous high of the day and retraced to thebreakout level.
The middle Bollinger band offered supportand the price immediately rejected that confluence area, also confirmed by the reversal candlestickwhich formed right after the buyers entered the market.
If we look back in the chart, we can spotanother buy entry, this time not as obvious as the previous one.
The price broke the previous high, and consolidatedthere, before it finally took off recording new highs.
And here is a short trade.
We have a clear downward trend, with lowerlows and lower high and the price broke the previous low of the day and retraced to thebreakout level.
The middle Bollinger band offered resistanceand the price continued its downward direction after testing the confluence area.
As you can observe from these examples, thehighs and lows of the previous day are without doubt one of the most important levels youmust have on your charts.
If a market cannot go any lower, it meansthat some sort of buying pressure must have come in at those levels to support the market.
This is why you have to know about these levels– not after the event, but before, and in good time to be able to monitor the situationand react according to the price action you see unfolding in front of you.
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Until next time.