Today, after making my daily screening I found out that EURUSD is possibly gaining more bearish momentum.
There is a major supply zone that has been hit and price has started a reversal.
There was a two-day bearish engulfing pattern that formed on Friday.
I am looking to possibly enter into a short trade after a small retracement towards 1.1100.
I would also like to see a 4H confirmation coming from price action.
A potential target could be the levels of:
- a) 1.1000
- b) 1.0900
It will really depend on price action, but these are the levels that I will be watching in the meantime.
Support becoming resistance (and vice versa)
This Price Action strategy works very nicely even as a standalone strategy. I usually spot it in the charts every day, so there are quite a lot of trading opportunities with this one.
The setup works both ways – support becoming a resistance and also resistance becoming a support.
Here is how to spot it and how to trade it:
To identify this setup, you first need to see the price strongly reacting or jumping away from some area in the chart. This strong reaction indicates that there was strong support or resistance in the area.
One big reaction is enough but two or more strong reactions are even better. This way you can be sure there was a really strong support or resistance area.
After spotting such a strong area, you need to wait for the price to go past it. You want to see this strong support or resistance breached.
- Even though the support/resistance was breached, it is still significant and strong. The reason is that breaching such a level requires a lot of effort and volumes of strong buyers or sellers. This area will be “defended” again. This is how support becomes resistance and how resistance becomes support.
- When you identify support becoming resistance (or resistance becoming support) level, you wait for the price to come back to this area and enter your trade from there.
- This setup works for all timeframes. I personally like to look for it on daily and on 30-minute charts.
Let’s have a look at some examples:
The first one is an EUR/USD 30-minute timeframe. The price made two strong rejections of a level which indicates that it was a strong support zone. Then the price went through it which made it a new resistance zone. Entry for a short trade would be after a pullback to this price level – the newly formed resistance level.