S/R Lines & Master Candles

An article by Gus    No Comments

Support and Resistance lines are one of the best ways to trade and one of the oldest ways to trade.

I have been trying to learn more and more about this method of trading for some time now and I feel its time to show my ideas.

First thigns first, this has become one of my favorite methods for trading because it is the simplest method I have come to learn.

I use no indicators, no special moving averages or squiggly lines covering my charts. I use the thing that is most important to traders and the oldest tool in the box, PRICE ACTION.

My trading is all about using the charts and the price to get in and out of trades and getting so good pips. The next few paragraphs will show you in detail all the information you need to know about support and resistance lines, candles, price action and my favorite master candles something every trader should know and be able to use.

What are S/R Lines?

S/R lines are points in time in which price finds some type of barrier either permanent or temporary. These lines are areas in which traders expect price to have a hard getting through. The lines work because a long time ago price hit it and bounced back hard, and thus traders expect the price to bounce back when price reaches this line again. The more the price bounces from this line the stronger it is.

How to use S/R Lines?

The main idea behind S/R lines is to wait for price to reach them. When price reaches the line wait to see what happens if the price breaks through the line, I would expect the price to keep moving in that direction. That is pretty much S/R lines as plain and simple as possible. I will explain more about candle formations later.

Placing S/R Lines

Placing S/R lines is actually quite simple, I would open up the chart you want and look for previous points where price seemed to bounce back. And place a line in that area, I like to see at least 4 or more bounces from the line, normally from the wick. I would then look back in time and see if they stand strong, see if you see price bounce form these lines a couple of months back, a couple of years back.

I like my lines no less than a 100 pips apart, but normally dont have them more than 200 to 250 pips apart. Itll take a while the first time but you will get used to it.

Lines will also need to be moved every so often up or down 20 pips due to changing economic environments.

I normally enter these type of line breaks depending on how fast the market is moving and how fast the price is moving. Lets say the line breaks and price is moving up but 1 pip at a time and stalling and reversing, I might hesitate and probably wont enter it. But if the price is moving fast and breaks the line and then keeps moving fast in that direction then I will jump into it fast.

Master Candles

These master candles are a very useful tool and one of my favorites. Ok so master candles are something really useful, it is essential a candle that makes a high and low the engulfed at least 4 other candles following it.

One would essentially buy when the price break the high of the original master candle or sell when the price breaks the low of the original master candle.

I have included an indicator I found on this forum which is super helpful and will create an alarm to tell you when they form.

I use the GBP/JPY 1H charts since they happen more often on that, if you use the 4H charts they still happen but rarely show up.

How to use it all

I normally trade the 4H breakout as my main tool, and use S/R lines and master candles to trade during the week and make sure the trend is still going in my direction.

For master candles I use a great indicator which I found on forex4noobs.com forum, it is essentially an alarm that will let you know when they form so you dont have to be looking at your charts 24/7.

Master_Candle_v2

With that indicator I use S/R lines to make sure I can make pips off it.

So if the price breaks the master candle I open a trade with a 5 pip buffer just to make sure price is moving that way. I look for S/R lines if one is really close within 20 pips I wait for it to break it to make sure price is really moving that way.

If the S/R line really isnt close say 50 plus pips I trade it and wait for it to get close to the line, if the price breaks the move my stop loss to the S/R line and if it bounces off then I close my trade.



Rules

-TP 50 pips

-SL 50 pips

-Move SL to next S/R line when it is broken

-Close trade if S/R line bounce