In this episode of Truth About FX, Walter dives into price action and drawing support and resistant lines correctly. He talks about scalping. And did you know that there’s a simple way of identifying support and resistant zones?
Download (Duration: 07:34 / 8.7 MB)
In This Episode:
00:29 – losing more
02:03 – focus
03:12 – simplest way
04:06 – special case
Tweetables:
Identify your trading style [Click To Tweet].
Focus on support and resistance [Click To Tweet].
Trade double bottoms [Click To Tweet].
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. Somebody wrote in and asked. They want to learn how to master price action but they’re losing more than they gain right now and it seems like they can’t time the entries and they can’t draw support and resistance lines correctly. What should they do?
Walter: There’s a couple of things here that are… What’s going on here I suppose is this trader has a couple of ideas that may or may not be true. As we all do, we walk around with these ideas that may or may not be true.
He believes that price action is the way to go. That’s good because that means that this trader has identified how he wants to trade. Awesome! I love it. That’s great. However, this trader has loses that exceed the profits.
That means one of two things. Either the loses and the profits are about the same size and you have more losses than winners. Or, more likely — which is most often the case — you have more winners than losers but your losers are way, way, way too big. That’s because our natural inclination — and I’m no different than anyone else listening to this — is to try and win more often than to lose.
When you do that, when you try to win more often than you lose, the easiest way to do that is to take really tiny, small winners and then take these big, fat losers. That’s the easiest way. It’s called “scalping”.
That’s the easiest way to ponder to your desires as a human. But, here’s the thing, you don’t have to necessarily time the entries to get into these things. What I would do is focus on the support and resistance.
You believe in price action, you believe in support and resistance. What if you just do this, what if you just look at the D1 charts — and I’ll post a video on the show notes for you — but what if you’ll just look at the W1 charts as a way of identifying your support and resistance zones.
You have the W1 charts, you go to the line chart and you identify your weekly support and resistance zones, and you just trade the D1 chart off of that. What if you also didn’t have to time your entries but instead let’s say for example, the markets been going down, it finds double bottom on support.
A really strong weekly support level so you trade the D1 chart there, after the second bounce, there’s a really strong bullish candle. It looks like a double bottom perhaps and you just put your order above the high of that big, fat bullish candle on the support level.
All you’re doing is you’re just saying, “Wait. If the market goes high here, I’m in.” You don’t have to time it. It doesn’t really matter. The time that you get into, it doesn’t really matter. What matters is that if the market trades higher and acts like this is going to be a double bottom then you’re going to get in.
That’s probably the simplest way to do this. To trade double bottoms and double tops and to simply use weekly higher time frame support and resistance. The biggest mistake I see is people draw too many lines.
They want to trade support and resistance but they have so many lines that like every candle touches a support and resistance level. That’s not the way it should look. It should look like you are cheering it on, waiting for it to finally hit the level like, “Wow! It’s been two weeks, it finally hit the level.” It should be like that. That’s what it should look like if you’re trading the D1 charts.
If I were trading the H1 charts, I would only look at D1 support and resistance. Whatever you’re trading, look at the higher, higher time frame as your support and resistance level. I hope that helps, and again, I wouldn’t worry about timing your feeling like your off.
Just make sure that you use a simple pattern like a double top or double bottom or the special case that I like which is the Whamie Trade and the Moola Trade. They’re just special case double tops and double bottoms.
In that case, you have concrete rules. You know when you’re going to get in. If it’s a double bottom, then the markets have got to go higher. If it’s going to go higher, it’s going to take the higher, last candle. It takes out the higher last candle plus 7 pips, I’m in. That sort of thing and see how that works. Test that in Forex Tester and see if you can get that to work. That’s what I would do.
Hugh: Cool! That makes a lot of sense. I think people are trying to make it too complex but it can be really simple, right?
Walter: Yeah, you’re right. I mean it’s weird but we take these things that are so simple and we completely take them and complicate the crap out of them because that’s what we do as humans. We’re so good at taking something that’s really simple and works and going, “Wait a minute. If we make it 5x more complex, it’ll be better.” They’re not necessarily true. So, there you go.
Hugh: Yeah. Thanks, Walter.
Walter: Thanks, Hugh..
SHOWNOTES
Finding Forex Support and Resistance
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