first i want to say i am really impressed by your approach. as i looked at your trade earlier i thought to myself, “there’s nothing wrong with identifying patterns and using indicators to
give you clues as to when to enter a trade - but without price action i think that the analysis is incomplete. the more confirmation you have, the better.” and then you came right up with this post and said it before i could.
So, I am going to analyze the GBPUSD charts (the way I would do it in price action - keeping in mind I am NOT claiming to be some kind of guru) and just walk you through my decision making process.
Okay, so the first thing I do is start with the monthly chart. Even if I am going to be trading off of the hourly chart, I start with the big picture.
Okay. So what I see in the monthly chart above is that GU has been on a downtrend between July 2014 to Oct 2016. So, what has been happening for the past year? You could say it has retraced back up to the level that I have marked. Or you could say that it reversed a year ago and is now on an uptrend, but at every S/R level, we have to ask ourselves - is the trend likely to continue or reverse?
So now we are at an S/R level. Let’s look a little deeper by analyzing the weekly chart.
In this weekly chart I have added a rising trendline and illustrated the higher highs and higher lows. You can still see the 3 s/r lines that i had previously demarcated. There was a flag pattern that price broke out of (in a bullish direction). Now we are currently at the intersection of the trendline and the s/r level above. Price had broken through this level and then dropped back in again. So what is it likely to do next?
We don’t know for sure, but it is looking bullish to me. If we saw sideways movement or tiny candles indicating that the bullish trend was losing steam (or more sellers were joining the market) - that would give us some indication that price may not move higher.
Let’s look at the daily chart:
I can’t draw a straight line to save my life on clip2net, but anywho - what I was trying to indicate is that price is not starting to go sideways and cut into the trend line - it’s actually ramping up away from it. I believe we will see this s/r line broken and the trend continue on for a little while. Now, what often happens is that it will break through the s/r line, then drop back down to the line and test it as support. If it holds and even better, drops a rejection candle, that would be a great time to get in a long trade.
Another clue that I am using in the back of my mind is that I am in two trades right now, both of them are shorting the USD. So, I feel that it’s bearish right now anyway. That’s just more confirmation to me.
On the 4 hr chart, we see two rejection candles from earlier today (and an indecision candle right right before those), these indicate price rejected going lower.
Personally, I only use the hourly chart to get a good entry sometimes. Such as, in this one below…we can see that as I type this price is pushing through that level that we’ve been looking at. One of three things is likely to happen. If price is very bullish, we’ll see a strong bull candle print off that line and maybe a sharp rally might occur. More likely though, price will break through, then come back down and retest the level. If it drops a rejection candle (like a pin bar or another bullish candle off of the s/r line) - that is a good sign that it will continue in the uptrend. The other possibility (and I think least likely) is that price will start to falter. It will go sideways, print small candles, an indecision candle, drop back down below the s/r, etc. In which case, we would be seeing a possible reversal.
That is a “top down price action analysis”. Let me know if you have any questions.