Decision spots or points are a great tool for all Forex traders because they provide solid entry and exit points. They also allow traders to understand the charts and technical analysis with more depth. Having an understanding of decision spots will also offer traders various other benefits such an ability to adopt to new price action and enhanced trade management methods. All the advantages of using the concept will be discussed later in this article. First what is a “decision spot”?
DECISION SPOTS 101
A decision spot is when price approaches and reaches a level where price will need to show its intent of being either bearish or bullishness. It’s a point where price “talks” to the traders and communicates what the market direction will be.
These decision or talking spots occur when price reaches key levels, confirmed trend lines, and support and resistance, at which price will either have to “bounce or break”. Or in other words, as price approaches these decision spots price can either:
- Respect the level and stop – BOUNCE
- Break through the level and keep moving in the same direction – BREAK
These bounce and break spots occur regularly in the market. A horizontal daily bottom, a 4 hour trend line, a round number such as 1.30, broken support and resistance, chart patterns, etc are all examples of bounce and break spots.
HOW DO THEY HELP?
Now that traders know how to recognize them, this section will explain the benefits to us traders.
When a trader waits for price to approach a decision spot, then there is a higher chance that the market will be watching it too. This in turn increases the chance of price making a big move with decent momentum. On the other hand, when price is in the “middle zone” of a chart (not near a decision spot), traders have little margin of error. The potential space when price is at a decision spot is bigger compared to price in middle of a zone, and therefore entries can be made at better levels.
- Clear trading points
These decision spots provide clear moments when traders can and should trade and it’s an easy method for traders to discipline themselves. Traders always face the temptation to trade a chart at the wrong moments (not in the trading plan). However when traders set up trading zones, it will be easier to avoid trading the iffy trade setups and have patience for the correct setups (according to our trading plan).
- Understanding the market better
It might not seem like a great benefit to most traders, but sometimes trading goes beyond a strategy. Understanding chart patterns and price action allow traders to view charts from a different perspective. This in turn allows traders to be adaptable to ever changing market conditions.
- Better exits
Decision spots allow traders to aim for high probability target areas. If a trader aims beyond a decision spot, then there is always a chance of a (deep) retracement or even reversal before the target zone is hit. It is possible for traders to aim below or above the decision spot but it is good not to over exaggerate. Skipping one zone is OK. The problem occurs when trader places a T/P which is 5 below/above 5 decision spots. The chances of price breaking through all of them are slim to none.
All in all, decision spots offer traders invaluable information when to expect break outs or bounces. Besides the benefit of becoming better at reading charts and understanding market structure, traders also can enhance their skills in choosing targets, entries and stop losses.
To help traders with understanding the above mentioned concepts, we want to reach out and help. If you can paste a screenshot with the levels you consider decision spots, we will get back to you with concrete feedback on the chosen chart.
Wish you Happy Trading and thanks for sharing this article!
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