*Simple Price Support Zone Trade Using Multiple Confluences*
I haven’t done a trade breakdown in a few weeks so I have decided to show you how I analysed and entered my long position on the GBPJPY FX currency pair. This is a fairly simple trade that I did share over on my TradingView profile before I entered so others could track the progress live.
Before I start with the technical analysis I would like to recommend TradingView for any new traders looking for a charting software. It is so easy to use and has every FX, Indices, Commodities and Stock charts you can think of all with multiple broker price feeds. I personally use it for all my technical analysis.
TradingView also has a very active trading community where people share ideas and education. It is a great way for new traders to see how other retail (and professional) traders are analysing the financial markets.
If you click on the link below you may be eligible for a discount when you sign up:https://tradingview.go2cloud.org/SH3bP
Right, now let’s get back to what you are all here for… free knowledge and examples of technical analysis so you can go out and successfully trade yourselves!
This long position trade on GBPJPY is still running and has zero net exposure so I am happy to hold the position for as long as it is profitable. It also benefits from positive swap fees so I get paid a small fee daily to hold this position with my broker.
Let’s look at the daily timeframe chart first to show you why I was looking to enter long positions at the 144.00 price area.
The daily chart for GBPJPY does seem fairly range bound with price being kept between resistance zones at 149/147 and support at 144. This is good for me because it means I can keep things very simple and play the probabilities that price should continue to bounce from these zones in the future.
I have also the daily/weekly 0.618 Fibonacci retracement level marked on at the 144.00 zone and these higher timeframe fibonacci levels can prove very accurate for quite a long period of time. You can see that price has previous bounced off this fibonacci support zone 3 times in past 6 weeks as shown by my circle drawn on the chart. The daily wicks show there is some nice liquidity sat in this zone in the form of buy order from other traders.
If I was to assume that price will bounce from this level and go to the next nearest resistance zone then what would be 147.00 leaving me a healthy 7:1 RR trade. However, the daily chart is showing lower highs being made so there is potential for the channel to decrease in range again like it did from 149 to 147 in which case we could see a reduced R:R of 4:1. This is still a good return and it is the reason why I still took this trade despite the diminishing range.
The chart above shows the lower highs with a trendline joining them. I can use this to predict any potential reversal zone for when I’m managing the position. If price does reject this zone then it may be a good time to take profits. However, if price breaks this trendline then the top of the range at 147.00 is definitely achievable.
I will now show you the 4hr timeframe chart to see why and how I entered the long position.
The 4hr chart shows the accuracy of the 144.00 level as a support for price. You can see on the previous 2 tests of this number that price almost immediately reversed and this is why I was very keen to go long here. As I always say, it is best to keep things simple and BUY low and SELL high. This trade is the text book definition of buying a clearly defined and proven low point.
In terms of risk management, I placed a stop loss order comfortably below the current low tests of this zone which would take me out of the position if price was to break through 144 and go lower. Again, this is simple technique that you can all do but I alway try to be more conservative with these stop loss placements. If you place your stop loss to close to the wicks of the previous candles then you leave your self open to stop loss hunting. I covered this in a separate document which you can find on my the downloads page of this blog or via the link below:
As you can see, price tested the 144.00 zone with a few wick rejection candles before repeating its cycle of bouncing off the level. It is now approaching the trendline of descending highs I have marked on and I will be looking to take profit around this zone marked by the yellow circle.
There is a strong possibility of price pulling back from the trendline and then making a new higher low before pushing on to the range resistance at 147.00. If this is the case I will look to enter a 2nd long position when this higher low forms and will try to use the 4hr 50ema as a dynamic support. Price is now above the 4hr 50ema so this is a valid confluence.
As always, I hope you learn something from this blog post and start to grasp the concept of trading using support and resistance zones. Remember… keep it simple! Buying low and selling high will take you a long way I trading if you learn to spot these areas on the price charts.
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DISCLAIMER: None of the information posted on this site is to be considered investment/financial advice. Trading is high risk and you should only trade with money you can afford to lose.