In this video we're going to take a look at the idea of price action trading
and selling short near resistance.
Hello I'm David Jones from Capital.com and in
the latest of these short videos on simple trading strategies. I thought we'd
take a look at the idea of using price action to try and get us into a trade
when we think a market is going to fall. I think if you're new to trading you
think that it's going to be really complicated; you have to have a trading
plan that runs to ten pages in length and you don't have to there are some
simple techniques you can use and in this one we're gonna look at the idea of
selling short when a market moves near a previous high. Of course during the day,
or during the week, or during the month, whatever your time frame markets will
move around and set highs and lows, and these highs and lows can be important.
There can be an area that shows you where sentiment has changed in the past.
So that's what we're going to look at today - we're going to look at a short-term example a
five-minute chart for the German index and looking at how a previous high can
set up a number of trades after it, and just as importantly help us manage the
risk and give us a level to place our stop loss. So let's take a look at the chart.
So to explore this principle, of previous highs, we've got the German 30
here; the DAX. This is quite a short-term chart every candle represents
five minutes worth of trading but we can see here September the 13th the market
pushes up towards what 12,125 - it sells off quite sharp, sells off almost a
hundred points. So let's pick this up as an important high let's just put that
line in. So this is really our reference point now so what we want to do if we're
trading using price action off previous highs and lows. We want to see how the
market reacts if it gets back to this level and we might want to think about
selling. Let's just jump forwards. So this first high was set on the 13th
September 12:15 in the afternoon. We've jumped forward to the next day,
it's in the morning now, it's about 8:45AM September 14th. The market has pushed
up to this old high - has probed through - but is reversed, so this could be for
some people a sign to go short; to sell in the expectation
the market is going to sell off again. So we could go short where the markets
currently trading now 12,115 with a stop-loss
somewhere above these highs - let's say 12,130 /
12,140, something like that. So we have a
relatively tight stop, we've sold short so we're positioning ourselves to profit
from a slide. Let's see what happens next. So the market does sell off - it sells off
quite sharply first of all - it dropped about 40 points in the next five minutes
or so and then it did actually push about sixty points lower in the end. So
what we could have been doing here is just moving our stop-loss below the
price. Trying to lock in some of those profits but giving us the opportunity to
try and profit even further if the market falls, but the point here is how
this previous high was a good reference point for entering the trade and setting
our stop-loss. We didn't necessarily know it was gonna fall so sharply, there was
no way of knowing that, but it was a good location to get a short on and place our
stop loss somewhere above that high. And just a couple more instances where this
level proved to be important, you can see again later on the same day we come up,
sell-off, come up again. It did break through it only broke through by about
five / six / seven points. So again if we had our stop-loss 10 / 15 points above
would have been ok. [It] came back up to it again later on in the session, sells off
much harder then. And then finally just to show it doesn't work all the time
September 18th we're running up to this level and bang it breaks through. So
this shows the importance of having stop losses but you can see how, on at least
four separate occasions, this high would have been really useful when it came to
planning our future trades, so we're looking for significant turning points
in the time frame that we're trying to trade. Rather than trying to trade here
in the middle, we're looking to trade at an obvious extreme but having our stop
loss in place to get taken out for a manageable loss if suddenly that level
gets smashed. So as we saw at the end it doesn't work all the time. No strategy
works all the time, but the benefit of trading this way is you have a
definite level to get out if the market moves against you and a logical place to
open up your trade. You saw there were three or four situations where the
trade would have worked, and this is an example at the time of recording this
video from just a few days ago. So it's not as if you have to go way back in the
past to find these examples but hopefully it does demonstrate if you're
wondering where to start - if you're just starting trading - to think about what the
price is doing. Don't worry too much about indicators and moving averages at
the beginning. Get used to following what the prices doing and looking at these
previous highs and lows to give you an idea of where to get in and where to set
your stop-loss. We'll start wrapping things up there but
as usual if you have any questions or a different view leave us a message in the
comments down below. If you liked the video if you could just click on the
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subscribe button and the alarm bell notification means you get automatically
notified whenever we upload a new video, and during the week we'll look at:
technical analysis, different markets like indices, FX and cryptos; a whole
host of stuff. But for this week, for this short introduction to price action
trading near resistance, we'll wrap things up there so from me, David Jones,
and Capital.com good luck with your trading!