Now, price on the 4h candles has broken below this support trendline, but has never closed below it.
After the first three points on the trendline, illustrated by the first 3 circles, the trendline was established as valid.
(It generally is considered that 3 points are necessary for a level to be valid)
After the 3 points, the trendline was established, and even though there were 2 more circles after that, where candles went below the trendline, the 4h candles still closed above. The wicks in the last 2 points indicate that bulls reversed price in time for the 4h candle to close.
This trading week closed pretty nice for this pair, the third to last candle's lower shadow is as long as the body, and the following candle is very strongly .
Therefore, I will be looking at a long position next week.
A lesson one could take away from this is that you should never take a trade that uses an unclosed candle, because it still has time to form completely differently, and it is a mistake that is very easy to avoid.
- For example, look at the two candles in the fourth circle: sure price went 30 pips below the trendline, but it did not close there. I can already tell you that there were traders that took this short position without waiting for that candle to close. Patience is key.
Another lesson is that higher time frames take precedence over shorter ones. One should not trade a 5 minute formation on a 1h or 4h,200 pip uptrend.