Archive for July, 2007
Key Support and Resistance Expanded…
July 21, 2007 8:53 amIn an effort to expand on the concept of support and resistance, in reference to an earlier article, let’s take a look at the EUR/USD.
Here’s the daily chart that I’m currently following. In it you see the yellow line at the bottom, marking off a key support level that I expected prices to test.
The closest it got was right at the end of May, before prices moved back up.
Prices can still come back to test this level, at which point we’ll see how this support level holds up.
Now how did I come to this support level?
It’ll be clear by taking a look from a further perspective…
If you trace along the yellow line, you can see, at the beginning of December that level acted as a very strong resistance point, halting the upswing started in mid-October.
That resistance price level was then tested again in mid-March, and created a degree of consolidation before breaking through to the highs seen in early May.
Quite simply by looking for areas where price was supported or resisted in the past I use that as my guide.
The longer that a support/resistance level has held, the more weight I give to it.
After defining them, I then watch how the price acts around them. This is where you pick up clues on what the market wants to do.
To finish, you’ll also note that the high formed in early May now becomes a key resistance point, which may form the upper level to a trading range, and if broken will potentially allow price to move up unrestricted until it meets its next resistance point.
I hope this helps to explain a bit more how I look for key support and resistance levels.
Continued Success!
Ray
“Isn’t this supposed to be about trading?”
July 11, 2007 10:14 amYesterday, someone asked me why I use so many poker comparisons.
So today I’ll explain… 2 reasons actually:
The first is I’ve only recently started following the growing popularity in poker.
Not being a gambling man myself, I used to shy away from the game. (I never saw trading as gambling, so that didn’t count in my mind.)
But after closer inspection I started to understand that unlike most casino games, poker wasn’t based on sheer luck… and instead was very closely related to trading.
You see, with the popular game of ‘No Limit Texas Hold Em’, after getting dealt a pair of cards you decide whether you will bet or not.
That’s essentially the ‘trade setup’. After the market gives you something, you decide whether you will enter into a trade.
What transpires with the additonal cards is equivalent to how the market unfolds after your entry. You decide whether to see what happens (check), add to your positions (bet more) or close out the trade (fold).
What I really found of great interest is how the emotional discipline of trading carries over to poker almost seemlessly. And it’s only now that I realize why so many traders reference gambling analogies… and why many of the traders I know are avid poker players.
The second reason I’m writing more about poker, is because it gives me a legitimate excuse reason to watch hours of poker 
You see, when I’m plopped down in front of the TV watching hour after hour of poker tournaments and my wife asks me, “Are you busy?”, I can respond, “Yes, I’m busy… can’t you see I’m working?!”
Continued Success!
Ray
“How low can it go?”
July 8, 2007 3:07 pmWe’ve all heard that “The trend is our friend”, yet anyone who’s tried to trend trade has invariably said to themselves… “How low can this market go? This MUST be the bottom!”.
Don’t fall into this trap!
Let the market tell you what to do. In this following example, the persistant downtrend in the USD/CAD forex pair continues as this trend continued even further downwards, breaking into new territory.
Even with a poor entry, in just over a month this simple trend trade has racked up over 490 pips.
This is a very interesting area to be in, as support levels back to 1991 have been cleared, allowing more unrestricted movement to occur [shown below].
In an earlier article I was asked to point out how I define key support and resistance levels.
One simple way is to see where price has acted as support and resistance in the past. The longer a price level holds, with respect to time and breakthrough attempts, the more important I deem it [as shown above].
And in this example, as the price levels gives way, there is a degree of unrestricted movement, as underlying support levels, in this case, just don’t exist.
We’ll see how the USD/CAD shapes up over the coming days and weeks.
Also take a look at the EUR/USD… this chart is looking quite promising as well.
Continued Success!
Ray
