Give Me a Break
Student’s Question:How reliable is it to enter the position after a break of support or resistance from a graph on a 1 hr or 4 hr in the direction of the daily trend?Instructor’s Response:In a trending market, when a trader is basing a trading decision on the overall Daily trend and then using a 1 hour or 4 hour chart to "fine tune" the entry in that direction, in my opinion, would be a higher probability trade…one with a greater likelihood of success.
As far as “fine tuning” the entry goes, a trader can use eitherRSI, MACD, CCI or Stochastics, for example, to insure that when the break occurs, momentum is behind the entry. While some traders will enter on the “break” itself, others will wait for the indicator to signal that there is some “follow through” based on momentum.While there are no hard numbers that can be put up as to reliability, as traders, what we try to do on a consistent, day in day out basis, is to only take trades that offer us a greater likelihood of success. Trading in the direction of the Daily trend based on Support and Resistance breaks on hourly charts will do that and provide with an added trading edge.Couple the above with good Money Management (such as trading with at least a 1:2 Risk Reward Ratio and never risking more than 5% of your account at any one time), will only enhance one's trading abilities.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.