Price Action with Dynamic Support and Resistance - Part2

This article is a continuation from the original Price Action with Dynamic Support and Resistance. I have decided not to place to much emphasis on the explanation but mention key points why we use it.

• Markets often respect dynamic support and resistance on all time frame periods
• Price action signals often occur at these levels
• Trade lager time frames such as Daily and 4H as smaller time frames can be more volatile 
• The more price touches the EMA lines the more the market starts to respect the trend
• Help us identify trends and the market bias
• Once we have identified the trend we can also take the slope into consideration
• I don't just trade the cross of the EMA, the reason being I could of entered a trade before the cross occurred with a counter trend price action signal. At a later the stage the EMA's may cross only to validate my entry.

Counter Trade Example

•  The safest way to enter is to wait for the EMA's to cross and once a clear trend is starting to form I could then enter a trade based on a valid price action signal in the direction of the trend. If the market makes an aggressive move either up or down wait for a pull back and if a price action signal appears then enter the trade. Example below doesn't have a valid price action signal this was to demonstrate the best level to enter at, however we could find a valid price action signal at the same level in the smaller time frames such as 4H and 1H.

Pull Back Entry Example / Diverging Trend lines

•  EMA should be used in conjunction with other analysis tools such as price action signals and horizontal support and resistance.
• When the EMA's lines cross and in a obvious direction  we can assume that this is the new short term trend being formed.
• Lets assume the EMA's crossed and new trend has been established and sometime in the future we see price break above the EMA's lines, but the EMA's have not crossed back in that direction we can assume that the trend is still in place and that price will eventually continue in the direction of the current trend.
• Once a trend has been set the EMA will start to diverge the further apart they move the stringer the trend. See image above for diverging trend lines.

Price Action with Dynamic Support and Resistance

In my previous article Trading Key Levels with Price Action, the main topic discussed was using a price action signal off these key event areas to enter the market. These key event areas are also know as support and resistance levels and are marked by horizontal lines drawn across bar highs and bar lows or near the same level. The other category is the dynamic or moving support and resistance levels which are marked by moving averages.

There are several different types of moving averages (MAs) in use by Forex traders. In fact, moving averages are the most common technical indicator across all financial markets, including the Forex .They are called "moving" because each new chart period is included in the calculation, while the oldest period is discarded. This has the effect of the average moving along as time passes and the chart develops. The indicator I use mostly is the EMA. The main reason that early chartists developed the exponential moving average was that they felt the SMA was too reliant on old data, and too slow to react to recent price action, so they devised a way to give the most weight to the most recent price action, and to let the weight taper off as you move back through time on the chart. I'm sure you asking what values should I use? It all depends how you analyzing price and over what  period. Most traders use 50, 100, 200 which allows them to see what the average price did the last 50, 100 and 200 days.

Now I'm sure you questioning the fact that I'm advocating that I trade purely price action without indicators so why am I discussing this? I use EMA for two things for trend analysis and  to identify dynamic support and resistance levels. It's pretty simple when the 2 lines example 50 and 100 EMA cross higher then we have a bullish trend in place, if they cross lower then the opposite applies. Please keep in mind that EMA only works for a trending market but when markets are range bound we need to rely on the static support and resistance levels. Trading with the trend you will want to trade away from the EMA or if you get a very obvious counter trend signal you will then trade toward the EMA.

 From the chart below we can deduce that price has bounced off EMA many times in the course of this recent uptrend. This demonstrates how valuable these levels are in showing us the dynamic or moving support and resistance levels.

Now if we take both static and dynamic support and resistance levels as discussed above and in conjunction with a price action signal this usually gives me a high probability setup that I can take advantage of. 

Hope this article can contribute toward your success in trading

Happy pipping!!

Forex Trading Journal

According to my understanding one of the key areas that many traders fail upon is creating or keeping a trading journal. For some reason people blow this off but it's an aspect of trading that truly defines and separates the disciplined and organized traders from the rest  who continually lose money and blow out their trading accounts. I just realized that there is a recurring theme with all my posts discipline, is Forex Training Worldwide trying to make a point here? I guess by me starting this blog I'm already on the right path.

The purpose behind a trading log  or journal is for me to log every trade I entered and exited and over time, I will build my own track record and an equity curve which will be very important tools in gauging my performance. Logging all those trades I will have metric data which will indicate certain patterns like

• What am I doing wrong
• What am I doing right
• If am over or under trading 
• What time of the day works best for me and my strategy  
• What strategy works best for my personality 
• See if I'm being too aggressive, risking too much 
• See if I'm being too passive, risking too little 

Forex trading success is defined by the end result of a series of trades over time and not the end  result of ONE trade, having a trading journal can help me from falling into this trap. I believe from what I have read and learned that a trading journal will help me create a Forex trading plan, and over time by regularly maintaining my  trading journal and by me viewing my equity curve these factors dictate what my next move in the market will be.

When logging all my trades in a trading journal I must avoid the trap that most trades seem to fall into, concentrating on pips or percentages, how many pips I'm up, how many pips I'm down. Instead I should track my performance in terms of pounds risked vs. pounds gained (risk reward), which can ultimately be reflected in the number “R”, instead of percentages or pips. 

I must keep in mind that I'm learning here how to make money, and making wise investment decisions, not pip collecting.