1. Is the plot related to the current price?
ok look.
If the current market price is here:
It makes no sense to plot all the support and resistance lines and trend lines that appear.
why?
Because the price is unlikely to reach that level by the time you close the trade!
Also, too much ‘information’ on the chart will give you too many unnecessary options in deciding when to open a trade, and the results of your trading decisions will suffer.
Instead…
Keep your chart clean and try to understand why the lines are there.
So pretty, so good, right?
2. Is your trade setup simple and relevant to current market conditions?
After plotting the relevant lines on the chart, what next?
Know if you are in an uptrend, downtrend or range.
Looking at GBPJPY on the daily timeframe, we see:
You can see the price is over that range.
Now, looking at the current price, what is the ‘current’ state of this forex pair?
good?
Since you are about to enter an uptrend, a breakout setup could be your superpower if you want to hop on the trend.
Need another example?
of course.
EURCHF on a 4-hour timeframe is:
Now it’s a choppy market.
But what should you do first?
Plot the correct, relevant lines!
Then what are the trade setups suitable for this kind of market conditions?
That’s right, entering pullback (buy at support, sell at resistance):
Look!
3. Is there little conflicting information about the deal?
To tell the truth…
The first two are ready to go.
However, you need to know not only when to open a trade, but also how to ignore a trade.
Yes, every chart you see needs the power to ‘go away’.
what do you mean?
This means that when in doubt, don’t hesitate to skip a trade (even if it might be lucrative).
Let me give you an example…
So that we can see USDZAR on a daily timeframe:
I found a nice breakout signal.
However, while the price is now approaching the resistance area (where potential sellers may enter), the general direction of this market is downward.
So, at this point, you’ll find that there are multiple factors “against” your trading idea.
What is your occupation?
correct. Ignore the deal and stay away!
Making quick decisions without hesitation creates good deals.
Remember that!
So…
what’s next?
How do you “test” this?
One word…
repetition.
Yes, we shared a lot of charts today.
However, in the real world of trading, all charts displayed are very different from each other.
That’s why we’ve introduced a three-step framework for making better decisions as a price action trader.
So, since we’re looking at historical prices (backtesting), the next thing we need to do is:
Take screenshots of your trades and see your thought process
Taking screenshots when initiating a trade helps encapsulate the thought process in choosing a trade (and also helps test the framework I’ve given).
Each screenshot doesn’t have to be complicated for each transaction. You can do it simply like this:
Simple and clean!
As a general guideline, we strongly recommend at least the following:
- Create 100+ historical trades with screenshots of your thought process
- Up to 10 trades per market (to be able to touch different types of markets)
- Use trading software or platforms that hide prices by default (to avoid bias)
Look!
But before it ends…
Let me show you some trading tools you can use to manually practice the 3-step framework I shared with you.