Today I’m going to share the thinking behind a trade I made back on November 28, 2012. When trading short-term binaries (i.e., 10- or 15-minute expiries), I usually trade the European session, which begins at 3AM EST and occasionally some of the New York session (begins at 9:30AM EST). However, I took this trade at 3:50PM at MarketsWorld.com on the EUR/USD. My schedule was simply better suited to trading at a later time on that particular day.
I made this trade based off attention to a basic price level, represented as the red line in the image above. The trade was taken on the 15:50 bar (3:50PM). I set an alert at that price level based on the resistance that was seen at the 1.2942 level just after midday. Once I received the alert signal on my trading platform, I looked at the screen and noticed that price had come up to that level relatively quickly in the past fifteen minutes based on the time of day (New York afternoon tends to be slower than the morning or during the course of the European session). I decided to wait and see if the level would be breached. But I saw that price was holding pretty well at 1.2943 or so and was actually wicking back down to 1.2942, suggesting that the resistance formed just a few hours ago was probably going to hold. I decided to take the trade just before the close of that candle at 1.2942 and just over five minutes later I had a 3-4 pip winner.
Now you might be thinking that if the resistance held twice, why wouldn’t I have taken a trade at 1.2942 once it got back to that point a third time? If you notice, the retracement off of 1.2942 was very weak, only coming down six pips or so. That tells me that when price gets back up to 1.2942, it’s probably going to blow through it. There was a very small wave of selling based on that previous resistance. But given that the down move was so small and hadn’t reached back down into a previous area of support, that suggested to me that this currency pair had a tendency to keep going up. Sure enough, once 1.2942 was touched again, the level was almost immediately broken, and it went up ten pips alone in that five-minute candle.
Whenever you’re looking to trade off price levels, no matter how strong it may seem or how steadily it’s held in the past, ensure that you’re not trading it after a weak retracement, as was the case outlined in the chart image. Moreover, I would also be very wary of trading price levels against a very strong overall recent trend.