First off, I want to point out a couple types of trade set-ups that I would personally avoid as it related to this trading day. I was not actively watching the market at this time, but I felt compelled to mention this type of scenario in this particular writing. Around 3:45AM the market came down to the daily pivot level of 1.36147 and bounced, followed by another re-touch and rejection on the 3:50 candle. This would have been a quality call option set-up. Nevertheless, the question is whether a subsequent trade on the touch of the pivot nearly two hours later would have been a high-probability scenario.
Based on the above image, it looks like an easy trade to avoid for the simple fact that it went through the pivot and made new lows. But if you were to look at the evidence from the price history, there are a couple things that might dissuade oneself from taking this type of trade in real time. First, is the general trending direction of the pair. It was down overall. Second, is how the market acted after the touch of the pivot level. It retraced back up relatively weakly by about ten pips or so. Then subsequently traded within a tight channel 3-10 pips above the pivot level for over an hour. (The white line in the above image roughly represented that day’s high so far, something I marked off myself. It’s demonstrated in a more zoomed out view below)
The bottom of a channel can serve as resistance if price lingers under it. Anywhere there is price congestion you can expect to serve as further support or resistance. I always recommend to heed caution in these cases when trading the market. Consequently, if price does reach back down to the pivot – a potential call option set-up – it really wouldn’t be worth it to me if there could be potential resistance just a few pips above your potential entry. I simply wouldn’t risk it and I would prefer not to consider trades in this type of situation. I know it can be tough, possibly because you haven’t had a good trade set-up in hours perhaps, but exercising patience in trading is extremely important. Otherwise it can be really difficult to do well consistently.
The next type of trade set-up is extremely similar. This came when price was below the pivot level. It would not generally yield a high-probability set-up for the same reason – the trading channel that had formed was extremely tight, roughly a four-pip range. In these types of cases, I prefer a range of at least ten pips to trade into. That’s not a hard-and-fast rule, as it depends on the general movement and volatility of the market. But in general, I simply dislike taking a trade when – if it does indeed go in its intended direction – it could encounter some type of congestive area within a matter of a few pips. I like to give a trade some “breathing room,” if that makes descriptive sense.
As for today’s actual trade, it was a direct result of using the “high-of-day” (often abbreviated HOD; LOD is frequently used to denote the “low-of-day”). That is, I was using the highest price of that day’s trading as a resistance level. This is one intraday level that has the potential to be a congestion point, in addition to the low-of-day. On the 10:05(AM EST) candle, the market stutter-stepped up and returned to this intraday high and showed sensitivity to the level by rejecting it.
I did not feel that this market would get up to its resistance 1 level based on its movement alone. It was only twenty pips above the current high-of-day, which isn’t that much in terms of intraday movement. (Major pairs often move over 100 pips per day.) But I didn’t think it had the energy to do so. To me, it simply seemed like it would basically stay within the boundary provided by the pivot level and resistance 1. Fridays can sometimes be a bit lazy anyway for the simple fact that the market will officially close in the late afternoon.
So I felt pretty confident in this type of set-up. No actual trading channel had formed beneath this level, like the previous types of set-ups that I mentioned. It was a pretty steady move up from the pivot. Accordingly, I decided to get into a put option on the touch of 1.36344 on the 10:10 candle. This yielded about a three-pip winner, which was fine as I wasn’t expecting any big winning trade here with the sort of lackadaisical movement that was apparent.
And to close, I’d like to thank many of you for contacting me recently, either through making a comment on these article pages or through contacting me directly through private message on the website. I definitely look forward to hearing any suggestions, recommendations, questions, comments, or any trading-related concerns you might have in general.