Figure 5-12 Horizontal Trading Range Provides a Pause before Continuation in the Same Direction in Visual Studio .NET

Paint QR Code in Visual Studio .NET Figure 5-12 Horizontal Trading Range Provides a Pause before Continuation in the Same Direction

Figure 5-12 Horizontal Trading Range Provides a Pause before Continuation in the Same Direction
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Figure 5-13
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Third Point Con rms a Trendline
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very important concept because it is at these third points on the trendline that one often sees a con uence of other support or resistance levels in the form of previous highs and lows, pivot points, and retracements, which we ll discuss later in this chapter These con uences, or crossroads, of support will help us highlight trade signals that we might not be homed in on if we waited for the longer-term trendlines Figure 5-13 shows that on May 1 the trendline intersected with the previous day s low This may not look that signi cant at rst glance on the daily chart, but for an intraday trader it proved to be a big move Another principle of technical analysis is that resistance can turn into support levels and vice versa Figure 5-14
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Resistance Lines Turn into Support Levels
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shows a pair of trendlines that gave way; they did not hold as resistance but remained in place and gave us support on the retest This highlights why we always have to update our trendlines and also leave the trendlines in place as they will aid us in spotting trend reversals, which often are marked by support turning into resistance and vice versa It is very important to see how price reacts to support and resistance levels before acting on them We do this by waiting for an individual candle to close and then updating our trendlines if necessary before committing to a direction or trade, as shown in Figure 5-15 We do this to let the market gauge the strength or weakness of the support or resistance level We always trade from the perspective that we do not know
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whether the level will hold We do not try to guess whether the level will hold; we stay patient and let the market tell us if it is respecting the potential support or resistance Remember to lose your opinion, not your money Once the candle is closed, we get a true snapshot of its behavior For example, if price stalls at a particular level and then brie y probes below it before retreating, that is very different from what happens when it moves right through that level and closes beyond it Figure 5-15 shows that price moved above the rst trendline before pulling back This prompted us to update our trendline and watch as the market made another move down before turning up on May 22, 2008 This is why it is so important to
Figure 5-15
Wait for Candle to Close above the Trendline
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wait for the close of the candle before entering a trade As technical analysts we must be as exible as the markets we trade Trendlines are very useful for pointing out direction Price doesn t have to go up to the trendline and give us a textbook trigger every time In many cases just having the trendline in place on the chart will provide a reminder of a market s current direction This is going to prove to be valuable information once you gain a little experience at demo trading and start to see rsthand how trending markets move a lot faster than do countertrending markets You may have an extra minute or two to analyze a countertrend trigger, but with a trend trigger, you are not going to have that extra blink to think about it; if you wait, you will miss the bus The USDCHF 60-minute chart in Figure 5-16 provides a good example of a buy signal in an uptrend in which if we had waited for the market to give us a trendline test, we would have missed out on a nice trade We use trendlines to remind us of the overall direction of the trend just as much as we use them to show support or resistance It is very important to have your trendlines in place on the chart before starting to trade because if you are trading on a short-term basis, you need to concentrate on execution, not analysis With your support levels in place, there is no thinking or questioning whether you are trading with the trend or counter to it The difference lies in whether you observe it more loosely and let the pro t run trend trade or take a pro t or loss quickly, depending on short-term price behavior such as candlestick formations and current structure charts (support and resistance); that is, countertrend trading depends on the current long-term and short-term trendlines
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