TUTORIAL
Today's candle broke out below support and closed the session below support; this is called a "Momentum Breakout". The breakout below support indicates price is ready to continue the downward trend. The "Momentum" part of the breakout means price typically starts to accelerate or increase range, with each day following the breakout.
TRADING
A breakout and close above a resistance line is a setup to enter the market "long" on the open of the next candle. A Stop Loss is then set below the support level. A Profit Level is then set at the next higher resistance level.
A breakdown and close below a support line is a setup to enter the market "short" on the open of the next candle. A Stop Loss is then set above the resistance level. A Profit Level is then set at the next lower support level.
In the case of the current market, the next support level is at 1.06547. The reward to risk ratio if I were to take the Short trade would be close to 1:1, a poor ratio. Smart traders do not take trades that are less than 2:1 as it can lead to portfolio disaster.
Note: Moving down to a lower time frame may provide a better reward to risk ratio but keep in mind that the lower you go in time frame the higher becomes the overall risk of the trade.
Today's candle broke out below support and closed the session below support; this is called a "Momentum Breakout". The breakout below support indicates price is ready to continue the downward trend. The "Momentum" part of the breakout means price typically starts to accelerate or increase range, with each day following the breakout.
TRADING
A breakout and close above a resistance line is a setup to enter the market "long" on the open of the next candle. A Stop Loss is then set below the support level. A Profit Level is then set at the next higher resistance level.
A breakdown and close below a support line is a setup to enter the market "short" on the open of the next candle. A Stop Loss is then set above the resistance level. A Profit Level is then set at the next lower support level.
In the case of the current market, the next support level is at 1.06547. The reward to risk ratio if I were to take the Short trade would be close to 1:1, a poor ratio. Smart traders do not take trades that are less than 2:1 as it can lead to portfolio disaster.
Note: Moving down to a lower time frame may provide a better reward to risk ratio but keep in mind that the lower you go in time frame the higher becomes the overall risk of the trade.