USDCAD 1H Resistance Zone Reversal Trading StrategyThis Support and Resistance Zones Strategy will enable you to take trades exactly at the area price will reverse. Identifying & trading support and resistance lines & zones is critical for every trader to implement into their system.
Our main indicator for this strategy will be price action and its relationship to Support and Resistance. This is, in our opinion, the best way to trade support and resistance.
You should always suspect a reversal at Support and Resistance as there is a high probability that price action will reverse at those key levels. That’s because it already did that before in the past and it will continue to do so in the future as traders will always take caution on these levels so some who had open trades will exit at those levels and others will initiate new trades at these levels and that’s why it is crucial to learn to draw these Zones.
The first step of this strategy is drawing those Zones on our charts so that we can easily spot where the price would probably reverse. Drawing Zones on the chart is better done on a higher time frame so that we can examine the main reversal levels and the more critical points on the chart as a higher time frame shows us the bigger picture. We begin by drawing horizontal lines on recent Peaks and Bottoms When you are doing support and resistance trading, a line with multiple touches is far better off as it is clear that it stood against the price and passed the test for many times and it will continue to do so. WHY?
Because History always repeats itself and this continues to happen time and time again on every chart that you will ever look at.
The second step is waiting for the price action to touch the Zone.
Basically, the higher time frame takes less time and attention than the smaller time frame alternatively, the smaller time frame has more signals as the zones may get hit more frequently so you have to be more focused if you’re trading small time frames.
If the price reverses that will be good as it is what we are expecting but need a strong reversal candle though to assure that price will reverse and that it will not collapse back again.
On the other hand, if it breaks that level it may be real breaking or a fake breaking so we also should see a strong piercing candle that effortlessly break that level to assure it will continue on the same way.
The Third step of this trading strategy is to wait for the candle which hits the zone to close as this will be probably the signal candle we are waiting so look at that candle.Is it a bullish or bearish candle, is it strong or weak, big or small, does it have long wicks or small wicks or no wicks at all, when you can identify the kind of candle then you will be able to decide whether to sell short or buy long. Knowing the type of candle is crucial to identify whether the entry is valid or not.
Here are some important factors in determining a strong reversal candle because spotting that specific candle on zones makes the difference between winning trades and losing trades.
The Qualities of a strong candle are: Long body;Formed after the previous touched the level but could not break it.
You will see that weak candles are not able to breach the Resistance line and had long wicks and could not break that level so we wait to see what will happen with the next candle. Will the price action break that level or will the resistance win and the price reverses.
The fourth step is to identify where you will enter the trade. Your entry should be slightly above or below the signal candle which is the strong candle, this way you are adding more confirmation to your trade to make sure that the price will move towards the direction you expected it to move to.
Our stop loss should be placed on the other side of the zone and not too close to the level to give it some space as we said it is a Zone, Putting the Stop loss there because this the end of the trade as the price is unlikely will reverse after that point. We used a 3 to 1 RR.
