A Special Tactic How Traders Can Capitalize on Hidden Support and Resistance

Support and resistance (S&R) is an essential tactical concept for Forex trading. But ask traders what they consider as support and resistance and the variety of answers could overwhelm you. Traders use a wide range of tools, indicators and levels to identify support and resistance, such as trading un-squared areas. In fact, many of these approaches on how to spot and use support and resistance could work perfectly fine. Today’s post is going to show you a “new” way of identifying and using support and resistance: it’s called the “armpit”. The armpit is a level which acts as support and resistance. The armpit however is hidden from the eye and recognition of most traders because it tends to be well disguised. The armpit is the middle candle of 2 impulsive moves in a row (could be up and down or down and up). 11- 9- 2014 mt 8 In the image above you see an example. Let us now show an example of “M mountain armpit”. When the impulse is up and then down the middle candle is on the top. This is called a “M mountain” structure. The low of middle candle will act as resistance. 11- 9- 2014 mt 3 When the impulse is down and then up the middle candle is on the bottom. This is called a “V valley” structure. The high of the middle candle will act as support. 11- 9- 2014 mt 2 STEP BY STEP REVIEW Let us review the process step by step. Step 1 is to recognize the impulse. The price action is not difficult, but it does take some time to train the eye to recognize this pattern correctly and quickly. Read more about this here. 11- 9- 2014 mt 1 Step 2 is to recognize when 2 impulsive swings have occurred (in opposite direction of each other). These swings make up the V valley or the M mountain. 11- 9- 2014 mt 3 Step 3: find the candle that has the lowest high in a V valley structure or the highest low in an M mountain structure (called “middle” candle). The candle with the highest high and lowest low is in fact not the most important but in most cases these candles tend to be the same. That means the middle candle often has the lowest low and the lowest high OR the highest high and highest low but only the lower high and higher low are a must. 11- 9- 2014 mt 4 Step 4: place a horizontal level at the level mentioned in step 3. This level symbolizes the support and resistance which is the armpit. 11- 9- 2014 mt 6 Step 5: look for signals that confirm price is bouncing at the expected level mentioned in step 4. 11- 9- 2014 mt 81 WHY DOES IT WORK? Why would this tactic work? Price in fact closes the “gap” and retraces almost all of the swing prior to it, which is the reason why this level often encounters fierce support and resistance. Also note that from a psychological point of view why the M mountain or V valley structures are strong because a momentum is followed by a momentum to the opposite direction. Basically price makes a 180 degree turn and moves impulsively in the other direction. First price was moving with momentum up/down, but then it suddenly moves with momentum down/up. 11- 9- 2014 mt 7 TACTICS NOT STRATEGY Realize that the article mentions “tactics” and not strategy. That distinction is done on purpose. After having explained the details, it is important to realize that the armpit works best as an extra supportive confirmation of analysis or trade setups. Using the armpit as a tool of confluence gives traders an extra edge. It is possible to use the armpit as the primary consideration when scanning and selecting the charts, but not recommended to trade purely based on the armpit method.

 

PROBLEMS WITH TACTIC

Be cautious when using and implementing the concept when trading. Some problems could occur that are noteworthy.

1)      “FAILING”: Price does not reach the armpit level. Just because an armpit level is on the chart does not guarantee that price will reach the armpit level. 11- 9- 2014 mt 10 2)      FREQUENCY: Once price respects an armpit, its value and importance decreases when price approaches the same level a 2nd or 3rd time. In some cases the same level does provide a support or resistance again, but the chances do decrease. 11- 9- 2014 mt 12 3)      Two (2) ARMPITS: in some cases 2 armpits appear on the chart. In those cases be careful when price gets down or up to the 2nd armpit level. Depending on the circumstances and structure of the market, a trader could opt to close out the first trade, could choose the close and reverse, or hedge the profit. 12- 9- 2014 AP 4)      WRONG ARMPIT: not recognizing the correct armpit is a dangerous mistake. Sometimes “half” correct armpits do work as well, but technically speaking they are not armpits. Armpits must have momentum price action: a bearish swing high and swing low followed by a bullish one OR a bullish momentum followed by bearish. If price action is corrective, then by definition no armpit can be present. 11- 9- 2014 mt 1 SUMMARY To summarize the armpit is a useful confirmation of your current strategy, any analysis, and potential trade setups. It also provides an extra understanding of the market structure. With this concept in mind traders are better equipped to understand at what levels price can get rejected. Using the armpit as a standalone strategy is not recommended. The preference is to use the concept as a tactic approach when using both a discretionary strategy or stricter rules based strategy. Have you heard of this concept before reading our post? What do you think of it? Do you agree that it’s better for confluence purposes or do you use it as a standalone strategy instead of tactical purposes? Let us know down below in the comments section! Thank you for sharing the post, wish you Happy Trading and a great weekend

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Winners Edge Trading was founded in 2009 and is working to create the most current and useful Forex information and training available on the internet.

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  • Cory Mitchell

    Nice. I use a similar approach but call it the “crotch trading strategy”…armpit is more palatable to read and write about. Good article. Cheers.

  • Jonathon Alexander

    Great read and educational too, proving even a an old hand 10 year trade veteran can still learn and refresh know how with support and resistance. I like the examples and see an Elliot wave there?

  • Avery Blalock

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    Sylvania, Georgia
    Please call me! I’ll be glad to tell you all about it…. 912-564-5738.

  • Chris

    Hi Bob, thanks for the clarifications, great job!
    Middle bar: we need price to make a V valley or M mountain so when 2 impulses (up and down OR down and up) are almost equal equal in length, then we consider those to be armpits.
    Entry: when the armpit is observed, traders can place an entry at the armpit level. Make sure to check out the problems with the tactic tho and practice on a demo, preferably using it as an extra confluence tool.
    Profit: the profit levels are either another armipit or support and resistance. So in a bounce to the upside, target resistance / top. In a short target target support / bottom..

    Hope this helps! But if you have follow-up questions, send me an email at [email protected]. Cheers!

  • Chris

    Thank you for the comment!

  • Chris

    Hi dreami77, happy to hear this! Glad that you found the article and info useful and thank you for taking the time to place a comment – much appreciated!

  • bob

    I read it once and have some difficulty understanding the concept. E.g. when it is obvious that we have the middle bar? After the next bar closes or is it enough to go over the top of the middle bar(in the down trend)? What the entry should be and when? And a potential profit target(s)? And do not be shy to draw more on the pictures(marking the middle bars, supports). I am keen to learn so I am asking for some clarifications. Thank you. Bob

  • fxpro

    thanks for sharing that

  • dreami77

    I think, that´s the best explanation i have ever heard beause of the point of didactics. You can follow simply the thougths … Well done to the author. It is the best article to the theme i have ever seen.

  • Chris

    Thank you for the comments Iakis! Yes reviewing the entire structure of the market is good to enhance the value of the armpit. One of reasons why I refer to it as a tactic and not a strategy because its better to use it as an extra confluence. Thanks again!

  • Chris

    Sounds good – wish you lots of success with the book! Let us know when its (close to) completed. Yeah that is very annoying when price accelarates beyond a TP so much.

  • lakis

    Totally agree with you guys, these armpits points when used correctly offer high prob trades with very good RR ratios. But be carefull to avoid using them at pullbacks and generally strong trends. they are stronger when the armpits points created from pin bars 😉

  • I’m going to say it again for anyone who missed it – THIS is a brilliant article on trading strategy – PAY ATTENTION if you want to maximize your profits.

  • I am working, slowly, on a book.
    As to my trading, well enough, but I’m still kicking myself for having closed out my buy of Gbp/Aud way too early. Genius entry point, but could have held on for twice as much profit. Oh well. 🙂

  • Chris

    That’s just great to hear Jack! 🙂 Thank you – much appreciated! I think its especially useuful for pairs that are more volatile in their movements because those pairs make bigger retracements. How is your trading been last few weeks – did you catch (some of) the USD bullishness? 🙂 Is a new stellar book coming soon? 🙂

  • Wow, wow, WOW – one of your best articles, EVER, Chris! A definite help for any trader.