I talk a lot about being patient and waiting on the trades to come to you, but based on some of the feedback I get, I don’t think many traders are hearing this, thus today’s trading article on how to use price action to find trade entries in advance. As a day trader that relies on price action trading strategies, our best trades are going to occur at strong support and strong resistance. That strong support or strong resistance could be flat or horizontal areas, or it could be angled areas, such as trend lines. When there is a trend, the trend always take precedence until their is a trend line break and then a retest of the extremes, so never forget that most important rule. If a trend line is considered strong support and resistance, and a trend takes precedence on entry direction, then what is likely to happen when prices pull back to the trend line? The answer is that the trend is likely to resume, so if we get a price action set up with the trend at a trend line, we want to enter with the trend for a high probability trade entry.
Now, let’s talk more about support and resistance. If you know how to find these areas in advance, then you will know how to find your best trades in advance. Most unprofitable traders are losing money because they lack discipline. Discipline is probably more important that your trading strategy, but both are important and without them both, a trader is destined to fail. The reason support and resistance is so important is because this is the location where most of your big moves will originate. Go study any of my chart lessons or videos and you will see that the big moves almost always originate at an important support or resistance area, so learning to find those areas and entering at them alone will immediately improve your trading success. The real key is learning to find those areas though, and some days it will be more difficult than others, but rest assured, they are always there, day after day, week after week and month after month.
Below is a small excerpt I found in an article that was located at www.tradestalker.com. The reason I am sharing this with you is because I like this trader’s thinking in regards to the importance of finding support and resistance levels when trading. Don’t pay too much attention to anything other than his discussion of support and resistance though. Here is a small piece of the article and what it had to say.
Any trading method can be greatly improved by adding accurate day trading support and resistance levels. That’s because these levels are not an invention, they are a natural part of the markets. They exist whether you know about them or not.
Whether you are day trading the emini’s, stock market day trading, or trading any other US financial market device, and regardless of how you’re trading them, you are already day trading support and resistance. I’ll show you why you are, and what’s more important, I’ll show you how to do it right.
Suppose you’re trading divergences on an oscillator, and the signal says “enter long.” Some entries are better than others because, if you enter long above a resistance zone, your odds are much better than if you enter long just below a resistance zone. However, if you don’t have accurate zones, you’ll never know…you’ll be trading blind.
Or if you trade a trend-following breakout system, you can avoid some of the draw-downs if you only take the long entry signals a little above support and not right below resistance. (Turn it around for short entries.) You can read the rest of the original article here.
One thing I can say for certain, is this guy has a good understanding of why we want to pay close attention to the important support and resistance areas at all times. By knowing where these areas are located, we can sit patiently and wait on prices to move to these areas before entering a trade. Even then, we still want to wait on a great price action set up before entering a trade. When we learn to combine great price action trading with support and resistance, we easily begin to improve our trading success. This is where discipline and patience come into play, because it’s hard to sit and watch prices move along without you. I can assure you that chasing the market and looking to enter continually will quickly reduce your success at any level of trading, so don’t fall for it. Stay wise and stay disciplined in your entries.
This is also why we always teach traders to never enter on break outs, but rather to wait on the retest of the breakout area, which is what we call a “breakout pullback entry.” If prices don’t set up for a breakout pullback entry, then the breakout will likely fail and you are better off fading the breakout, or entering in the opposite direction of the break out for clarity. What many people don’t realize is that trend lines are just as important for finding strong support and resistance areas, so if you don’t get that, spend some time studying our videos and other trading articles so that you can get a better understanding of this fact. By learning to identify these important areas, and then waiting on prices to reach them, followed by then waiting on a price action set up as we teach the rules, you will find that your trading success can be improved greatly.
In the end, learning to find strong support and resistance will allow you to use price action to find trade entries in advance, and by finding your entries in advance, you almost force yourself to be more disciplined when day trading any market. If you aren’t identifying your possible entry locations in advance and then patiently waiting on prices to reach those levels before looking for a trade entry, you will continually be questioning every tick of the chart and wondering if you should be entering a new trade, and that type of undisciplined strategy leads to indecision and poor decision making almost every time, and that ultimately leads to losses.