Combination of Support/Resistance Breakout, Bollinger Bands and Candlestick Signals

Category: Forex Market Analysis and Signals, Technical Analysis | Monday, January 4th, 2010

Support/Resistance Breakout is a good trading system. In fact, any price movement has to be done after a support or resistance breakout. Each market has several support and resistance lines and levels that can be see on different time frames, from one minute to monthly, and also many support/resistance levels and lines that may not be seen. Trading based on support/resistance breakout will be more effective when combined with some other effective tools like Bollinger Bands and candlestick signals. Here below, you see the analysis of  a position that we took on July 14, 2009. We took that position based on the resistance breakout, but the candlesticks and Bollinger Bands also helped us to be sure about the validity of the resistance breakout:

Candle #1 broke above the resistance line. As it was not a big candle, we could go long right after its close, but I think I missed that moment and I saw it when the next candle (#2) was retesting the broken resistance. The shape and the close level of #2 candle assure you that the resistance line is valid and its breakout can be trusted. However, It is always a good idea to wait for a fresh buy signal above the broken resistance (although it may become too late then). Candle #3 was a good signal indicating that GBP-USD really wanted to go up and might not break down the broken resistance. We could go long at the close of #3 candle, specially when it was closed above the Bollinger Middle Band.

Candles #4 and #5 show some weak retesting activity, but candle #6 was a fresh buy signal above the broken resistance and also the Bollinger Middle Band and it could be considered an a new chance to go long.

At the same time, both MACD and RSI were showing the upward direction and were agreeable to the price chart buy signal. Specially please note that when candle #3 closed and formed the buy signal that we wanted, it was coincident with the first MACD bar that closed above the zero level.

.

  • USD:
    ISM Manufacturing PMI 11:00am EST
  • GBP:
    Halifax HPI m/m 4th-8th
    Manufacturing PMI 5:30am EST
    Net Lending to Individuals m/m 5:30am EST
  • CHF:
    SVME PMI 6:30am EST

.

EUR-USD: (04 January ; 03:10pm ; EST)

Daily Chart:

As you see on the below screenshot, EUR-USD is forming a buy signal above the 161.80% Fibonacci level. The Fibonacci levels on EUR-USD daily chart are plotted from the high price of 2009.03.23 to the low price of 2009.04.22 candlesticks, from top to bottom. If you do so, you will have the 161.80% level at the position you see on the below screenshot. Markets are used to react to 161.80% levels strongly. So it may cause EUR-USD to go up or at least, if EUR-USD insists to go down, the 161.80% level will resist and EUR-USD may form a range around this level.

4hrs Chart:

It is a few days that EUR-USD is moving inside a range. You can also see this with the MACD bars. Based on the 161.80% level reaction on the daily chart, I expect EUR-USD to break above the range resistance (1.4458) on the 4hrs chart and go up. If it does we will go long. If it goes down and breaks below the support line, we will go short.

5min Chart:

According to 5min chart, market is getting slow. It has already formed a range on the 5min chart.



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22 Comments:
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Comment by erik
2010-01-04 10:56:38

Very nice Vahid.

HAPPY NEW YEAR!!!

Reply to this comment
 
Comment by erik
2010-01-04 10:58:31

Will always remember “vahid” , my first instructor. I have learned much from you vahid, thank you.

Reply to this comment
Comment by Vahid
2010-01-04 15:34:37

Hi Erik,

Thanks. Happy new year to you too :)

Reply to this comment
 
 
Comment by Tim Caris
2010-01-04 11:35:42

thanks, Vahid, it is becoming more and more clear your entry points.

Reply to this comment
 
Comment by Mori
2010-01-04 12:04:02

Happy and Prosperous 2010 for you Vahid and the rest of the gang posting here..

I have recently registered and I want to know what’s the main criteria for drawing a resistance / support line:
The example above is Resistance so…
a) Linking the top of the first 2 or 3 candles after a top is formed (including wicks)
b) Linking the tops of the candles (only bodies)
c) just drawing a line that more or less embraces the tops of the candles (wicks and bodies) after the last top has been formed

After this resistance is broken it becomes automatically a support line? Is this always the case?
Which is a stronger support in this example, the Middle Bollinger Band (SMA) or the newly formed support (former broken resistance level)?

I’ve read all the material in your site (Congratulations!!) and you said you based the trades based on Candlesticks (only real time indicator) and Bollinger Bands, why this example uses MACD and RSI if they are lagging indicators? Just to confirm? Why not the Slow Stochastic?

Sorry if I,m asking a lot here…

Thank you..
by the way Great Site, Great Info, Good Vibes!!
P.S.
I opened a ticket with your helpdesk regarding subscription but no reply yet..

Reply to this comment
Comment by Vahid
2010-01-04 16:01:50

Hi Mori,

Thanks. Happy 2010 to you too :)

Regarding your question, I suggest you to watch the videos I have about plotting the support and resistance. Now my answers:

No, I shift to line chart and I plot the support and resistance lines on the line chart and then I shift back to the candlestick chart and wait for the breakout.

> After this resistance is broken it becomes automatically a support line? Is this always the case?

Yes, we expect it to work as a support. If not, the price will go below it again. A resistance that works as a strong support line after the breakout, can work for us, because we go long after the breakout and the broken resistance should not let the price go down.

> Which is a stronger support in this example, the Middle Bollinger Band (SMA) or the newly formed support (former broken resistance level)?

Both of them work at the same time. Maybe they are almost the same. In fact they are when there are so close to each other. However, you can never know. Sometimes the middle band work as a VERY strong support/resistance that no other support/resistance can compete with it :)

> why this example uses MACD and RSI if they are lagging indicators? Just to confirm?

Yes, as confirmation. The main thing is the price chart.

Why not the Slow Stochastic?

I do not like stochastic. I believe it has a lot of false signals. It has already caused me to lose a lot of money, so I will not spend any more money for it :)

Thanks for your question. I enjoy good questions and your questions mean you are on the right track and you know what to do and what to look for.

I think your ticket is also answered already. Please let me know if it is not.

Best regards,
Vahid

Reply to this comment
Comment by Mori
2010-01-04 19:25:35

Thank You for this most detailed reply!!
I’ll be joining soon… just waiting for an answer from “Albert” from Helpdesk
BTW do you live in Canada?
Regards,

Reply to this comment
Comment by Vahid
2010-01-04 19:27:55

Hi Mori,

You are welcome :)

I do not see any unanswered ticket on the help desk. Are you sure that your ticket is not answered? Please post something new to it and so Albert will see an update (just in case he has forgotten to answer.)

Yes, I live in Canada.

Reply to this comment
Comment by Mori
2010-01-06 20:35:24

Thanks Vahid..everything’s set… I’ll be joining you soon..

Reply to this comment
Comment by Vahid
2010-01-06 20:52:44

You are welcome.

Reply to this comment
 
 
 
 
Comment by Mori
2010-01-06 20:38:11

Hi Vahid can you post the link to the videos you mentioned here?… Thanks

Reply to this comment
Comment by Vahid
2010-01-06 20:53:51

I thought you are a member already. The videos is accessible in the members area. Sorry about that, but if I post their link here it will not work.

Reply to this comment
Comment by Mori
2010-01-07 08:49:59

Ok I hope to get the wire done next week Thanks

Reply to this comment
 
 
 
 
 
Comment by King
2010-01-05 08:41:42

Hey Vahid, Happy new year!
In regards to breakout, do you work with breakout in the direction of the daily trends..for example if the daily trend is up, do you look for breakout through the resistance line?
Thanks again.

Reply to this comment
Comment by Vahid
2010-01-05 17:51:32

Hi King,

Happy new year to you too.

We try to do that, but not necessarily. It depends where the daily trend is.

Reply to this comment
 
 
Comment by Surinder Rakhra
2010-02-23 20:57:50

I have been trading for about 1 1/2 years now and developed my own trading system. I strictly trade in 4 hour and daily chart timeframe.

Only 10% Traders make and 90% Lose money. It is strictly due to Greed, Fear, Emotions and lack of Education, Training, Patience and Discipline.

The biggest mistake with new traders is that they would start to trade in a 5 min, 30 min or 1 hour chart, apply their indicators and do not realize that a trend may come from a different timeframe for example: 1 hour, 4 hour timeframe.

The key to successful trading is and most traders fail to do the following:

1.) Try to develop a proper trading System and Rules and follow it.
2.) Do not let your emotions get in the way
3.) There are no short cuts to trading, as most traders think that way. Not every day is trading day.
4.) Make time your friend and not your enemy because it will reward you and not frustrate you.
5. Always trade in the direction of the daily trend. Look at weekly and monthly charts for a bigger picture.

Reply to this comment
Comment by Vahid
2010-02-24 14:06:19

Hi Surinder,

Thanks a lot. I enjoyed reading your comment. You are 100% on the right track. Congratulations!

Reply to this comment
Comment by Surinder
2010-02-24 17:19:38

Hi Vahid:

If there is something you would like to ask me or share with me regarding trading, please don’t hesitate to contact me.

Cheers,

Surinder

Reply to this comment
Comment by Vahid
2010-02-24 17:20:41

Thank you Surinder :)

I will keep in touch.

Reply to this comment
Comment by Surinder Rakhra
2010-03-19 07:50:32

Hey Vahid:

Just wanted to ask, the Colourful Macd (GMacd). Is it the same default setting used for all the timeframes or no. Example: 1 hour, 4 hour and daily chart.

I use it with Adx + Dmi but even if Macd is used standalone, it is very powerful.

Let me know,

Cheers,

Surinder

Reply to this comment
Comment by Vahid
2010-03-20 11:10:13

Hi Surinder,

Yes it is the same setting for all time frames.

Reply to this comment
 
 
Comment by Surinder Rakhra
2010-03-19 13:47:24

Hey Vahid:

Don’t worry about it. I found out the macd setting for 4 hour timeframe. It is 5-34-21(or9) .

Happy Trading

Surinder

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