A couple of weeks ago I introduced a new video course: Reading market strength and weakness. One of those who watched the video asked this question:
I just finished watching the support and resistance video you put together.
I can say that it definitely helped me. …
The one thing that I really found enlightening was the attraction points theory. That will definitely be helpful as I will have some “targets” now.
One question that came out of watching the video though is this: When a forex pair/stock/etc is ranging, is there any way to identify when its going to break out and in which direction? As of now I’m just waiting for the breakout to occur (ie close outside the range) and then placing an order a bit above/below the high/low of that bar.
My response to this inquiry is that there certainly is. One of the principles of reading the underlying strength or weakness is that the chart methods can be employed over different timeframes and between timeframes. By the latter I mean we can look at shorter timeframes to help assess longer ones.
Here’s what I mean.
If USD/JPY (to provide a forex pair in line with the questioner’s focus) is showing a range on the daily chart, then we can look at the hourly chart, for example, to assess the strength or weakness of the market in that timeframe. That then can help us develop a picture of the likely action at the next higher timeframe level.
This multiple timeframe analysis, by the way, is a method technical traders use in many ways. Many of them will look to the longer-term chart to identify general trends (or the lack there of) to bias their trading in the short-term. Obviously, since the short-term happens before the longer-term, we can also flow the information the other way as I’ve suggested above.
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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
** See John’s full bio.
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