How to Use Support & Resistance for Determining Entry Zones

In this article I want to focus on using support and resistance for determining potential entry zones. In today’s market I see two currency pairs that have interesting charts: the AUDCAD and GBPAUD.

AUDCAD MEGA CHART PATTERN

The AUDCAD could offer an interesting bearish breakout trade soon as price is approaching the bottom of the chart pattern. There are several reasons why a bearish break has potential:

  • There was a very strong bearish momentum which was followed by a sideways consolidation;
  • Bearish engulfing twins on the daily chart signals the potential restart of the down momentum;
  • All daily candles after the bearish twins have been small and ‘inside’ the bearish engulfer, which means that the bears remain in control;
  • The trend on the weekly chart is down as well.

Obviously there is little doubt in which direction I want to trade this currency pair: down. But what is the trigger to actually enter the trade?

19- 11- 2014 audcad

I am thinking of the following two options:

  1. I am keeping an eye on the break of the support (green) trend lines (orange arrow) OR
  2. I am watching for a bounce at the resistance (red) trend lines (orange circles).

Let me be specific about what I am looking for in each of the two trade setups. When price is breaking below support for a potential break out trade I want to see the following:

  1. Price close near the low to indicate bears are in control;
  2. Have more than half of the candle below the support trend line.

When price is bouncing at resistance for a potential bounce trade I want to see the following:

  1. Price close near the low to indicate bears are in control;
  2. Bearish candle stick pattern.

GBPAUD RETRACING INTO RESISTANCE?

The GBPAUD has had an enormous drop during November. Considering the massive momentum pushing it there could be a decent chance of yet another round of selling. However, a consolidation will probably occur first of all before any downtrend can continue.

In my hunt for a short on the GBPAUD, I am keeping an eye on various resistance levels and monitoring whether any patterns will appear such as a chart pattern (wedge for instance) or candle stick pattern at resistance.

19- 11- 2014 gbpaud

The main resistance zones are:

  • Confluence of -61.8 Fibonacci target (blue) and 23.6 Fibonacci retracement level (orange);
  • Confluence of -100.0 Fibonacci target (blue) and the broken bottom (dark red lines);
  • Confluence of -161.8 Fibonacci target (blue) and 38.2 Fibonacci retracement level (orange);
  • At the very maximum, confluence of last week’s weekly high (orange line) and 61.8 Fibonacci retracement level (orange);

Just because price is bearish at the moment, however, does not mean a bullish reversal could not take place. At the moment I am looking for shorts at the mentioned resistance spots, but if price would be able to build an uptrend channel then I would certainly look for the trend long positions as well (besides shorts at the resistance). This summarizes my game plan for these currency pairs….

What do YOU think of these setups? Are you interested in trading them or perhaps skipping these setups for other ones? Let us know down below!

Thank you for sharing and Happy Hunting!

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