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Home » Education » The Holy Grail of Day Trading Strategies

The Holy Grail of Day Trading Strategies

Posted by FXTimes in Education - August 7th, 2015 3:11 am GMT

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Day trading is believed to be the best trading style to generate quick profits through forex trading. Traders use a number of day trading strategies to make money, here in this article we are going to discuss the mother of all such strategies which may also be referred as the Holy Grail of Day Trading Strategies. This strategy is basically a combination of different price action tools that include candlestick pattern, horizontal support/resistance, Fibonacci levels and trendlines.

3 Steps

The strategy comprises of the following steps;

  • Identification of Trend with the help of Swing Analysis
  • Horizontal Support/Resistance Area
  • Valid Reversal Candles

Let’s discuss each one by one.

Swing Analysis

The first step is to identify the trend. Swing analysis is the best price action method to determine the current price trend.

Price of an asset moves in the form of waves. The highest level in any wave is called the “Swing High” of the wave while the lowest level of any wave is termed as the “Swing Low” of the wave.

The ongoing trend would be considered bullish if the price printed a Higher High and Higher Low in the precious wave as demonstrated in the following EURUSD chart.

1

Similarly, if the price printed a Lower Low and Lower High in the previous wave then the trend would be called bearish. Remember this is the most crucial step of the strategy, if the trend is bullish then only long (buy) trade opportunities will be considered and vice versa. More details about swing analysis may be found in this course.

Horizontal Support/Resistance

Once the trend has been identified, now the next step is to find out major support and resistance levels. This can be done through horizontal S/R analysis. Horizontal support/resistance levels are the points that changed the price direction somewhere in the past. For instance, consider the following chart; you can observe that the USDCHF price faced rejection near horizontal resistance as marked by the red lines. If the price approaches this resistance again in future, then the area will again act as horizontal resistance level.

2

Horizontal S/R analysis is considered one of the best price action methods to calculate support and resistance levels.

Reversal Candle

Once the trend has been identified, then the next step is to find out potential trading opportunities. Reversal candles such as pin bars, engulfing candles, dojis and shooting stars etc. provide good trading opportunities by signaling a change or continuity in the ongoing trend. Price action traders tend to enter a buy trade every time a bullish reversal candle i.e. bullish engulfing bar, bullish pin bar or hammer is emerged near key support area within bullish trend and vice versa.

Conclusion

The strategy explained above is believed to be one of the best day trading price action strategies because of its effectiveness. The strategy may be made more effective by using good risk/reward ratios. If you are still confused or have any question about this trading strategy then we suggest going through the financial trading course by Shaw Academy. 

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