Trading with confirmations
Hello traders, in this article we will catch one of the most important aspect in trading which may increase you trading accuracy but also build confidence in you trading: trading with CONFIRMATIONS.
In trading we will find all sorts of trading strategies, systems, set of tools, indicators and usually most traders use all of them to filter the best trades. Sure, they can provide very good results but they can give more false signals when inappropriately used.
To use them correctly, it very important that you first UNDERSTAND PRICE ACTION, which is the activity of price in the market with the help of support/resistance zones or lines, and trend lines (structure).
Once you have the information of what the market is doing (Price action), which is simply reading the chart, you can now search for signs/confirmations which may help you to have a more in depth analysis of the market.
In the above chart is a concrete example on how to use indicators in combination with Price action. Price action being the common thread in our chart reading (structure), and indicator will be confirming what we read on the chart.
We first drew on the chart our major support and resistance on a higher time frame (in this chart on a 15mins or 1h time frame), and then we zoom in and go on lower time frame (5mins time frame) to get a clearer view of what the market is doing in the region of this major resistance 0.70500.
Resistance being itself a clue that market is likely to reverse in this region, is confirmed by a beautiful and accurate Bat pattern (XABCD) which is a set of Fibonacci numbers forming this pattern, telling us that at D leg, in the PRZ (Potential reversal zone) price may reverse.
After we touched the PRZ, we now know that market has lot of probabilities to go on a downward move, we will then try to catch up downward trend movements.
As price moves, we may read the chart and see the structure the market is doing, we will look for price patterns like double top/bottoms, triangle formation, head and shoulders and other simple price action patterns to find signs of weakness of the market.
In our chart above we clearly see a double top, a triangle formation, in this case we don’t see higher highs, meaning that price rejects highs (uptrend movements) and is boiling in this zone of double top and triangle to get short. These weaknesses are also confirmed by the RSI indicator showing divergence.
At this present moment, we have all the information (price action) to know where the market will be going. In Binary options, the problem is the timing, therefore we need some accurate reversal signals or breakout signals to enter the market. These signals or confirmation are candlestick patterns (pin bar reversal, reversal engulfing candles, inside bars breakouts) and EMA 21 crossovers.
When combination Price action with indicators we get clear view of what market is doing, a precise understanding of our knowledge, and more importantly we have high accuracy in our analysis. Have a look on the above chart to the red and green arrows on how we could have profit of the market with simple confirmations.