Where is the best place to look for trades?
The most important aspect of any price action trade setup has to be where the price action forms and this is why learning to mark up the key levels where price has shown strong reversals is so, so important.
To find these important hunting zones (key levels) the daily charts play a crucial role, as they are the charts which contain the least noise and make it easier for us to find and mark the best levels from which price has reversed strongly in the past.
So many traders tend to focus their attentions first on the price action setups themselves and then once formed they look to find a relevant level to back up the trade.
This process of looking for the price action setups first in my eyes is the wrong way round, trades should be located at the hunting zones (key levels) first and then we use the price action setups to help get us into a trade.
This technique means we mark up our hunting zones from the daily charts and sit and wait for a price action setups to form. The control gained by waiting for price to reach a certain level and then a price action setup to form is very empowering and gives a trader a really purposeful mind-set. It means we are waiting for the market to come to us, rather than hunting the market down for price action setup in any old areas.
It’s just like going fishing, we all know the experienced anglers that know the best locations to put their bait are usually the ones who come out on top. Yes, a newbie angler who just plonks their bait in the middle of a lake still has a chance of catching a fish but the odds are not stacked in their favour as this technique involves more luck than skill.
How to find and mark the important hunting zones (key levels)
The first step is to pull up a daily chart for any Forex pair you follow.
Next, look at where price is currently trading and find the strongest support and resistance levels and mark them up.
The chart below shows a daily chart and I have marked up the two key levels in red, where you can see have shown strong rejections with price being unable to close beyond. These will be the only levels I will look for price action setups on this pair.
Now, we have our two levels marked, one above and one below current price. We can set price alerts, using one of the many different price alert services out there. I personally use trade interceptor as it’s my favourite alert service.
Now we can sit back and wait to be alerted of price hitting either of the levels. Once price does hit our hunting zones (key levels) we need to watch the charts for any price action setups.
So as you can see this technique reduces the amount of time spent watching the charts and will also prevent us from entering any trades that form in NO-MANS LAND.
Advantages to trading from key levels
So once we are able to consistently mark the hunting zones from the daily charts we have a far better chance of finding those trades where price could react strongly. The ability to find these key areas will not only increase our chances of trades working out but aid in removing the weaker trades from our accounts.
Golden rule: We need to always be trying to trade away from key levels to give trades the most space to move into and never trading back into the key levels.
Taking trades from weak areas, where price has not been rejected strongly (NO MANS LAND as I like to call it) is where I see traders can go wrong and explains why trades tend not to move very far before tending to turn back on us.
The patience to only trade a certain forex pair when it gets to a key level is a process that once mastered means we are trading with the correct discipline. It also means rather than watching every forex pair for price action setups day in day out, we only need concern ourselves with certain forex pairs when price is in the right areas. Thus, reducing the time required to watch the charts for each forex pair.
Being poised and ready for price action setups to form at our pre marked hunting zones, means we can plan trades out a lot more efficiently, it’s a lot less stressful to take and enter a trade that forms where you want it to. Rather than going down the route of spotting a trade setup first and then hunting quickly for a level to back it up and trying to plan a trade out in a bit of a rush, this style of trading can be messy and not very professional.
Learning to hunt for trades in the right places all stems from using the right charts, I believe the daily charts produce the best results making it easier to find and mark the really important turning points in the markets.
The ability to sit on our hands and wait for price to come to us is a challenge but one that becomes easier over time. It greatly reduces the number of weaker trades taken and removes a lot of time spent in front of the charts.
It’s a win win scenario but learning to find and wait for the right setups to form, certainly does require a lot of practice and patience.