Pieces of a Puzzle That Fit
In order to inject you with this knowledge slowly we will now take a look at how the previous 2 lessons connect together. It is this price action confluence that will allow you to trade very safely and based on evidence. You will never be able to continuously win every trade you take no matter how good you get, but you can keep those probability scales tipped handsomely in your favor.
Trend Continuation – Great Location
Starting with our first trade example of the trend continuation let us use an image to visualize the price action confluence behind it. At this stage in your learning it is important that you properly understand how each concept is working for you, and also how each concept is slotting together.
There is a lot of price action confluence going on with this trade and all tipping the probability scales in your favor.
- There is a confirmed higher low followed by a confirmed higher high (very clear in the wave structure),
you plan to be part of the turn that will be the next higher low in the sequence. - There was an area of resistance that is now acting as support (the squares in the above image),
this is what is referred to as a mirror flip and at the support/resistance level location looks good. - There was an area of demand that was also created and is now being retested (the circles in the above image),
this can only be seen as a big plus adding more probability to an already good location.
Double Top – Great Location
The next trade example we had was the double top so let’s visualize the price action confluence behind it. If anything is leaving you scratching your head at this stage then you may need to quickly review the Forex trading basics section.
Once more, plenty of price action confluence at play, but with the double top location is also inherent in the pattern.
- There have been 4 pushes up since the move began at the bottom of the chart (very clear in the wave structure),
you plan to be part of the turn that will confirm that a top has been reached and it is time for a reset. - There was an area of resistance created and is now being returned to (the squares in the above image),
this is where you look for a retest to begin so that you can be part of the double top pattern.
3-Point Turn – Great Location
The next trade from our chart was the 3-point turn after a reset in the upward momentum. In order to visualize all of the price action confluence at play let’s first look at the following image.
By now the price action confluence in this image should start to stand out for you.
- There is a confirmed higher high after the break of the 2 double top highs (very clear in the wave structure),
you plan to be part of the turn that will be the higher low in the 3-point turn sequence. - There was an area of resistance that is now acting as support (the squares in the above image),
this is what is referred to as a mirror flip and at the support/resistance level location looks good. - There was an area of demand that was also created and is now being retested (the circles in the above image),
this can only be seen as a big plus adding more probability to an already good location.
Only Thing Missing is an Entry Trigger!
Chart patterns, market structure, and location can be used as a unit but there is one more connecting piece to the trade entry puzzle. You need to define yourself an entry trigger to confirm you are not alone in your analysis, a way to prove that the majority of those who actually move the market are on the same page as you. Technically this is also in the price action confluence category but it deserves it’s own lesson and that comes next.
