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First of all, you should now that there are three main ways to enter the market:
This is a highly preferred strategy as it is usually less risky than any other methods. In an uptrend this strategy involves buying on dips (the pullback), while in a downtrend you would sell on rallies (after prices temporarily bounce back up before continuing to fall).
You identify support and resistance levels on our chart by applying the methods explained in the previous section. After marking these levels, you can focus on looking for a good entry point.
Example for Buying the DipIn an uptrend, you wait for prices to dip to a strong support level and wait for a bounce from this support for prices to rise again. At his point the trend is UP and the wave is DOWN. If ROC (7) and Hist MACD are both oversold, there is a higher probability that the support will hold.
It is usually best to wait for prices to bounce first before we BUY rather than set an order right on the support. This way you can make sure the support level will hold.
Be careful not to buy on a black candle. You also make sure the white candle has a long body. Wait for this white candle to close above the close of the last black candle before you enter a buy position. You place a stop loss a few pips below the support level, in order to minimize our losses in case the market does not move the way we want it to.
To sum up, the following conditions should apply when you buy a dip:
Similarly the following conditions should apply when you sell a rally:
This trading strategy is more risky than the bounce strategy. In an uptrend this strategy involves buying when prices break a resistance level. In a downtrend, you sell after prices cross below a support level.
Usually, a breakout takes place out of a certain chart pattern, such as a consolidation range, a triangle, or a flag, etc.
Filter: To assume that the breakout is valid you should turn to a 1-minute chart and wait for two white candles above resistance or two black candles below support.
Example for Buying the Break of a ResistanceThe following conditions should apply when you buy a breakout:
The following conditions should apply when you sell a breakout:
A failure swing signifies that a trend is about to reverse. This is a good opportunity to enter the market.
Example for Buying the Trend Reversal (Failure Swing)In a downtrend, prices fall to the lowest point F but subsequently the trend weakens and prices are unable to form a new low. In this case we have a failure swing. Price fail to swing lower and trough H is higher than the previous low. So prices continue to rise breaking resistance level G, and you would enter a buy position at point I.
The following conditions should apply when you buy a trend reversal:
In an uptrend, prices rally to peak F, but subsequently the trend weakens and prices are unable to form a new high. In this case we have a failure swing. Price fail to swing higher and peak H is lower than the previous peak. So prices continue to drop past support level G, and you would enter a sell position at point I.
The following criteria should apply when you sell a trend reversal:
This completes the section on finding entry levels and we move on to explain exit levels (finding targets).
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