Sunday 27 May 2012

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.

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