Marking Up The Zones
It is of the utmost importance that you know how to mark up zones in the Forex market. When you can mark these zones correctly, you are able to see why price reacts a certain way around a zone, whether that be support or resistance.
Price is usually pushed or pulled to a particular area so that banks can fill their positions (liquidity) and ensure that their orders are filled at the best available quote at the time. It is essential to realize that when the market goes to these levels, the price action that follows will either confirm a continuation of that trend, a reversal of that trend, or the market will remain ranging. This requires patience, above all else!
In this article we will take a look at a few things, namely;
- Where price is magnetized to and why?
- What we look for when the market is magnetized to that price zone?
- Different outcomes and the probabilitiy of each.
Where price is magnetized to and why
Below we will look at an example of GBPCAD, and we will use this for further illustration in this article.
Source – TradingView
Now, this may be hard to believe, until you do it for yourself, but I drew on these levels way before the market started reacting around these levels. This is insane because it sounds like I’m saying you can predict the Forex market.
No! That is not what I am saying, but what I am saying is that you can spot areas where you can EXPECT price to react… In this case, there is a key level on the monthly timeframe (thick black line at 1.76550) and other strong zones (marked in grey) from the smaller timeframes.
So why exactly does price magnetize around these zones? – I’ll give you two reasons.
- Price action that occurred to the left of the screen around that area. Therefore, traders believe the zone is important.
- Traders can pile on positions at these levels and leave the newbies guessing where price is moving next. That is why, for so many new traders, the market seems to change direction as soon as they enter.
The market will stop switching on your positions when you start to work on your psychology towards the Forex markets and understand how the Big Banks play.
What to look for when price tests these regions?
As you can see from the original example, there are many different trading strategies – From double bottom formations to pullbacks. If you are familiar with Fibonacci you will spot that on the bullish move, we could have entered at fib zone before prices moved up.
We also look for the minor zones to see what price does around those areas (the arrow tool drawn horizontally).
Different outcomes and the probabilities of each
As a Forex trader, you must understand probable vs. the possible. When you do, you can block out the noise on the charts, and you are ready for whatever comes your way in any given week.
However, this comes with analyzing the markets beforehand and looking at every scenario that could play out before it does. Your imagination is crucial. This is something I learned from Falcon Guidance founder Mark Hutchinson, in the following video.
Looking back on the example, you will see I added arrows on the chart (beforehand) to show my directional bias.
Here is a bonus for all my Forex traders!
Don’t be so hell-bent on a specific technique that you don’t allow creativity to guide you on the charts, because you never know what you could find or learn. Allow “outside of the box” thinking to spill over your charts and see what you come up with!
You may find a different edge altogether!
Happy Trading Traders!