Getting Paid to Trade by the Market (Part 2)
09/30/2008 10:06 am EST
Now look at the last bar on this first chart: Price comes down to test the blue up sloping Median Line Parallel. It briefly peeks below the line but closes well back above it, with great separation, which is a great sign of strength. This is the second successful test of this Median Line set and once again, the Median Line set showed us right where price should run out of directional energy. Once this second test happens and price closes well above the Lower Median Line Parallel, it’s easy to diagram a high probability trade entry set up:
Because price tested the Lower Median Line Parallel and even peeked below it, running any stop loss orders if they were there, and then closed well above the line—a great sign of strength—we’re looking to get long the Euro FX against the US Dollar if price comes back and re-tests this Lower Line. The initial stop loss will be five ticks below the peek below this Lower Line and the profit target will simply be the Median Line, at 143.75.
This is a classic ‘test and re-test’ trade set up that is my number one high probability trade entry in my own trading. I go over this set up and my other four favorite high probability trade set ups in one-on-one mentoring time and time again, so my students know these trade set ups in their sleep!
More in Part 3 tomorrow
By Timothy Morge