DislikedHello,
I just finished watching one of James' free videos and I have a question I hope someone can answer. In the screenshot I would have taken a short on the bar with the yellow arrow I added.
I would have gone short because of the previous double bar high with lower close. But that would have been a bad trade.
Is there a way I could have known not to take that? How would I have known?
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Thanks!!Ignored
It would've been a poor setup(but passable) if the previous bar(the lower close one that triggered the setup in your mind) would've closed below the brown line. But it would be a very poor setup. But as long as the bar that is supposed to trigger your setup(the dbhlc, the previous to your yellow arrow) didn't close below, there's no breakout.
That being said - on page 6628 I have a setup of gbp/cad. You'll notice there a continuous yellow line(1.5525 - a solid level) and a dotted line(1.557) which was actually never touched this july yet I drew.
You can open your own chart to look - it'll be easier(F8 -> disable chart autoscroll if you use mt4 and browse back on h4 after you've placed the 2 lines). Or you can look at that extremely zoomed out picture.
I call the 1.557 guard lvl for 1.5525(a perfectly arbitrary name I use - probably some poor soul writing books about tech. analysis found them a name but I don't know it). What I mean - if you scroll back last year(for instance, on H4), you'll notice most lows were stopped by 1.557 which acted as main support back then. And the few which broke 1.557 were turned back by 1.5525(which back then was guarding 1.557).
When a line such as 1.5525 acted as very well known and respected resistance, you want a close above it's guard at 1.557 to be reasonably sure it broke out. Because that's exactly what the guard is doing - is catching the few strangled souls who managed to broke the main line. Like the loyal troops placed behind the main line to catch the deserters and send them back in action or execute them. If your price managed to avoid being turned back by the guard, only then a break is probable.
Now look at the left of your yellow arrow/bar - where would you place a "guard" line? What was the main resistance when price was below your brown line? Where did price stop 1st when it went below the brown line(extreme far left of chart)? Etc.
Same reasoning I've used to consider 1.557 to guard 1.5525(ie - past action). If you have a close under that imaginary line, only then the setup would be valid and vaguely playable.
But then, you'd be left with little room to advance through a rather a thick area. To quote Mike - "no space". Aka - crap setup. Crap, but ultimately playable with a very small position(even I wouldn't take it normally, and I take pretty crappy setups with minimal positions - but in the end you could say there is a setup if you're itching for action).
Hope it makes sense...
CAD/CHF at .84; could be interesting to watch, though being short chf over the weekend is dubious.
