DON'T fade a Daily Shooting Star on a resistance level

30 juin 2021

Hi Traders,

STATEMENT
The aim of this post is to provide you a detailed explanation on how to use the daily time frame to create an explicit expectation of direction in the market you might be trading. Directional bias can give you a huge hint on how to trade on lower time frames (e.g., hourly time frame).

RATIONALE
What is the value of determining a directional bias before thinking on taking a trade on a lower time frame?

• Proper identification of possible areas of support and resistance.
  
• To avoid fading high probabilities daily candles we wouldn't be aware of their existence if we would only stick to lower time frames.
  
• To facilitate the TP placement.
  

Doest it mean that I cannot fade a Daily bias?

• It will entirely depend on the date that you should gather before even thinking of trading a pair.
  
• Every traders should collect data over the past 3 years (at least) for each market he/she is trading, that provide a feedback about "How many times a D1 Candle is confirmed or faded (%)"; How long does it take for the trend to confirm/fade a D1 bias (number of days)."
  
  THE PLAY
  With that in mind, let's have a look at the EURUSD chart on the Daiy time frame and lets focus on what happened at the end of February 2021.
  First of all, we identify daily levels of support and resistance (1) and (2). We have identified those 2 as they clearly were rejected several times since August 2020. Still on the Daily time frame we can also identified a inverted head and shoulder pattern. This one in particular is very obvious to identify, meaning that a considerable amount of retail traders are most likely going to play it long whether on a breakout or on a break and retest around the marked price in below screenshot. If we move forward one day, the 25th of February 2021, a Daily Shooting Star is printed showing that buyers lost control by the close of the day, and the sellers may be taking over. At that moment it's highly probable that a big amount of retail traders are trapped as they went long after identified an inverted H&S pattern. But for us, it means that we've just established a bearish bias and will seek an entry on a lower time frame. [List]
  
• On the H1 time frame I will look for an entry below the D1 area I marked as support/resistance level. Additionaly I'm also drawing H1 levels that I consider as potential trouble areas where the price could react significantly.

[List]
* We have now identified our entry point.

• THE RESULT
• Price hit our TP on 5th of March 2021, generating a ROI of 4.14%.

Feel free to like, share and to leave a comment and ask any question you would have regarding this play :)