T2W Trading Community

This again is a chart of the EURUSD. The down trend line is drawn once we have two points on a chart which is what is always required when drawing trend lines. Once we have this, we simply draw the line and wait for price to breakout above the line for a long entry. The logic here is that price is trending down because it is at price levels where supply exceeds demand. We want to buy this market when it reaches a price level where demand exceeds supply (more buyers than sellers). Instead of trying to guess at where this might be, the price action on the chart will tell us this if we just wait and watch. When price eventually breaks out above that down trend line, it happens because it has reached a price level where there are more willing buyers (demand) than sellers (supply). This is where we would want to take a low risk entry and buy. While there are many profit taking targets that we cover in class, one logical target for profit is the origin of the decline in price that started the whole downtrend in the first place. This is shown as the dashed red line on the chart above.

Here we have a steep uptrend as shown by the price action and our uptrend line. Instead of guessing as to where this dramatic advance in price might end or at what price level is all the supply, we can simply draw an uptrend line by connecting the pivot lows and look to sell short on a breakout (breakdown in this case) of that line. As in the last example, a natural target can be the origin of that rally in price as shown by the dashed red horizontal line on the bottom of this chart.

Keep in mind that the most important part of trading is managing risk properly. We focus on this extensively in class. The focus of this piece was to help with entries as that is the beginning of a good risk averse strategy. The breakout entries discussed are equally appropriate in any and all markets so don't think this is just for Forex. Never forget, whether the candles on a screen represent a chart of stocks, futures, Forex, options, football trading cards, rare coins, or anything traded… They are all just people and price. We would quantify a breakout in price the same way in any and all of these markets. If you are watching the buying and selling of a David Beckham rookie card and you see that the last one available at the current price level just sold, what is about to happen to price?