Let’s erase some candles and look at that same chart as the last page, but as we would have seen it live. We’ll also add in our S&R zones, which should be on our charts at all times.
You might notice a small change to the lower trendline on this chart. Since we’re showing the chart as we would see it live the bottom trendline has moved up slightly from where it was in the previous page’s chart. Trendlines, as well as S&R lines, will move slightly over time as we get new information. In the future this trendline will move up about 20 pips, but for now it is 100% accurate.
We don’t have any Long Wicked Candles or an inside bar, and technically we don’t have an outside bar either, but if you look closely this candle is literally 1 pip away from being an OB. We professional Forex traders call that “close enough” and treat it like an official OB (remember this is an art, not a science).
In addition to the candle being an OB we also have a trendline bounce that is inside an S&R zone. And even if we didn’t have the OB and we were missing any candlestick reversal signals this would still be a great trade opportunity. We don’t have to have every possible reversal signal, just enough to know the trade is very likely to be successful.
So the signals we have tell us that price is going to reverse and go down, so this is a good trade! Let’s see what happens.
Price did fall, just like we expected it to. The best place to exit this trade would have been on the red candle marked by the red arrow, but there’s no way we could have known that at the time. Price has not yet gotten close to the lower trendline, so we would have been expecting the trade to go even further.
But that didn’t happen. Price moved back up and caught resistance at the S&R zone, so this trade would have been exited near the blue arrow. It was still an excellent trade, even though we lost a little profit at the end.
You can now see how we’ll be using trendlines in our trades. They are nothing more than diagonal S&R zones and are traded exactly the same way. Next we’ll take a look at predicting when a trend will end.