When placing a trade in the foreign exchange market, it’s helpful to understand where the buy and sell zones are. Along with trading trends and trendlines, this helps you as a Forex trader to identify potentially profitable Forex trades.
Buy and sell zones, generally speaking, exist when a trend has been broken in currency trading. To identify and trade buy and sell zones, then, you must be able to identify a trendline break.
The Broken Uptrend
Remember that the trend is your friend until it bends when trading Forex online.
Bends can also be your friend, however, if you learn to spot them and learn how to trade the trendline break (entering in the buy or sell zone).
An uptrend is considered broken if the following conditions are met:
1.The market makes a new high.
2.The market first penetrates the trendline.
3.The market then retraces to the last level of support.
When the uptrend is broken, the currency trading market enters the sell zone, which is the area below the trendline. Remember, however, that the trend is only broken if the market has made a new high. You will see certain cases where the market pierces the trendline but does not break it when you are trading Forex online.
To be a true trendline break the Forex market must bend after it has made a new high.
Watch for this broken uptrend when you are trading Forex online:
Trading the Sell Zone
When currency trading, the sell zone is one way to take advantage of an uptrend break. To trade the sell zone, wait until a complete bearish candle forms below the trendline (it must completely clear the trendline, wick and body).
Notice the sell zone in the picture below:
Take care to wait until the candle has closed to call a trendline break; otherwise you may fall victim to a false spike. When the bearish candle appears in the sell zone according to the conditions stated above, place a market order to sell at the opening of the next candle (if equity management allows).
Set your stop loss order at the last level of resistance like in this Forex chart shot:
Techniques which can be applied to up trends, can also be applied to downtrends. Tomorrow I will share with you another example of how you can apply this strategy to currency trading online in the Forex market.
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