In this post today, I will like to talk about a patterns that I have observed last Friday on the 21th Nov 2014 for the EURUSD. In fact, I have students asking me about such a patterns before and therefore decided to post this article on the Forex FAQ section of this blog.
Before I begin, you can log into your trading platform and open the EURUSD 15 minutes chart on your platform and then zoom in to the period of 19th to 21th November 2014.
You can see that the price is trying very hard to break upwards by creating a lot of long candles but every time it hits a point, it quickly bounced back down. This is due to a major swing high that occurs on the 16th November 2014 which acts as a strong level of resistance for the price.
If you take a look at the last retest of that level, the price collapsed by over 200 pips which is a very good profits if you go in that direction.
So does it means that every time you see the price testing a particular level for several times, you should go the opposite direction?
Of course not. As a trader, we must look for a confluence of events to give us a trading opportunity. Seeing that the price tested the strong resistance for several times gives us a signal of a possible down move but we need other indicators or patterns to increase the probability of a down move.
In this case, if you take a look at the hourly chart instead and from the chart, you can see the formation of a negative divergence on the 19th November itself and this is additional point to tell us that the price will move down. For those of you who do not know what MACD negative divergence is, you can take a look at my previous blog with the link below
Therefore the next time you see the price testing a particular strong level of support or resistance for several times, it is time for you to look for other evidences that the price will get repelled by the strong levels so that you can enter a trade in the direction of the repulsion.
Before you try out this strategy, you must fine tune it on a demo account first until you are able to make consistent profits with it before you move to trade live with it.