Monday’s Trading: 4/4 ITM

June 10, 2013

My first trade on Monday was a put option on the 2:10 candle. There had been some minor congestion at the 1.3200 level earlier in the morning, but nothing major. My trade was mainly based off the whole number of 1.32. I’ve found that more often than not, trades at whole numbers during lower-volume periods tend to be winners. And it did so here. During high-volume times, like when the European and U.S. sessions overlap, or the U.S. morning session alone, I’ve found that trading whole numbers can be a little less reliable. Regardless, if you’re ever taking a trade at a “psychological” support or resistance level, be sure you have something else working in your favor, as well. This could be S/R created by previous price history, a daily pivot point, a Fibonacci retracement, or perhaps even something else that you’ve found to be an effective tool in helping you make trading decisions.

Of course, don’t just trade a level just to trade it. Trading support and resistance successfully isn’t just a matter of trading every little bump in the market. If you have read some of my blog entries in the past, you’ll notice that during my commentary I’m always planning ahead – looking for areas that I can potentially trade in the future. If and when the market does reach these levels, I’m not just trading them right off the bat or suddenly making a trade that didn’t look feasible five minutes ago. I’m still waiting for confirmation, either through candlestick patterns (e.g., dojis, hammer candles), or waiting for price to touch, reject, and re-touch before taking the trade at the exact price I’m targeting – not even a tenth-of-a-pip above or below. It definitely does require a lot of patience and it can be time-intensive. But in order to trade short-term binaries effectively, it’s absolutely essential.

My second trade was shortly thereafter on the 2:35 candle. As you can see from the screenshot below, I had a support level working in my favor at the 1.31914 price level. Price had come down and rejected this point in the market on the 2:30 candle, so I took the trade on the re-touch of 1.31914 on the next candle. This produced another winner.

After that, the market dipped back down below 1.31914. Following the common trading wisdom that “old support turns into new resistance” (and vice versa), I began targeting that same price level for potential put option trades. I had my yellow support 1 line at the very bottom of the chart (1.3178) earmarked for potential call option set-ups. The market soon went up to 1.31914, but I didn’t automatically take a trade. I waited for price to touch and reject, but it never happened so I bypassed the put option entirely. If I had traded the level simply because it had gotten there, it would have produced a losing trade.

My best set-up of the day occurred later that morning on the 4:15 candle. As you can observe from the chart image, price had busted back above 1.3200 (another example of why trading just the price level isn’t always prudent). It encountered some resistance at 1.3211 before coming back down to 1.3200, where I was able to find a nice call option trade. Ultimately, it won by just over a pip, but it was still the best trade of the day.

Now you might be curious why I didn’t take a put option back up at 1.3211 (third red line from the top of the image). Normally this would represent a good set-up, but if you notice, the recent uptrend had been significant. If you drew a trendline over the bottom-side of the price action that had been occurring over the past 90 minutes, it would be angled well over 45 degrees. And just because I like to trade support and resistance doesn’t necessarily mean I like counter-trends. In actuality, I prefer to take trades within the context of the most recent trend, if one is discernible, as those will almost always offer higher-probability set-ups than a trade set-up in which the trend would be against you. Trying to fight the trend is never a good idea in basically any market you trade. So I bypassed any put option set-ups at 1.3211 and decided to let the market run its course before deciding on any future trade set-ups.

The market became sort of choppy thereafter. A decent line of resistance formed up at 1.32443 (top red line) but I never traded it. Although I was watching the market off-and-on during that period, I was more into watching online TV at that point than actually trading, so I didn’t have any serious intent of trading further that day.

However, I did take one more trade that day. At around 8:45 the market became very bearish and the Euro lost all of its gains from the entire morning in just a half-hour. That said, trend traders and/or breakout traders will point out that if you ever encounter a market that is trending sharply yet steadily for any prolonged period of time, it’s a good opportunity to take advantage of the direction and potentially make some profit.

Now, for me, I don’t like taking random entries with the trend or trying to piggyback on a breakout. I’ve tried that mostly with demo accounts and have never had much success. So what I like to do is find an area where I can take a trade on a pullback within the context of the trend. I did exactly this on the 9:30 candle back at the old price level of 1.31914 I had traded many hours earlier in the day. Price fell through it, then came back up and rejected it so I took a put option upon the subsequent retouch of that level. This trade did go against me just a few minutes before expiration, but I was still able to net a three-pip winner to close out the day.

As always, if you have any questions, comments, or feedback, feel free to leave them below and I will get back to you as soon as possible.