This article and video looks at how to analyze forex pairs using strong support and resistance levels, and then reveals the Crotch Trading Strategy which is based on those strong price levels/areas. This is the third video in the Forex Swing Trading in 20 Minutes video series.
As with all strategies, this one will take time and effort to learn and get good at. Strong support and resistance levels may seem easy to identify, but the main issue traders face is assuming that TOO MANY levels are strong. This usually stems from boredom and wanting to trade; traders assume a level is strong just so they can take a trade, even when the level is not strong and didn’t cause a significant price reversal.
It’s important to watch the other videos in the Forex Swing Trading in 20 Minutes video series for some context on this forex swing trading strategy.
Video 1:Pairs to Follow and Setting Up Charts – Forex Swing Trading in 20 Minutes
Video 2: Time Frames and Trend Strategy – Forex Swing Trade in 20 Minutes
The basic concept of the Crotch strategy is that strong support and resistance are levels that caused the price to reverse trend. As soon as we can see the price has reversed trend we go back and draw the strong support and resistance level using a box/rectangle and extend that rectangle out to the right. Strong support and resistance levels can be used in the future for trading and analytical purposes.
I am willing to buy at strong support, with a stop loss just below the strong support area. I also typically avoid going short, with other strategies, right near strong support.
While orders can be placed in advance, anticipating that the strong levels will hold and cause the price to reverse again, a better method is to actually wait for the price to stall and start reversing in the strong area. Once it starts to reverse (consolidation breakout or engulfing pattern), take the trade. This helps avoid those trades where the price keeping running through the strong area and quickly hits the stop loss.
More advanced profit taking methods will be discussed in a future video, but for now, using a 2:1 or 3:1 reward to risk ratio will serve you well in making sure that your winners are always bigger than your losing trades.
Hope that helps you out!
Watch the next videos in this free series:
To learn more about how to day trade and/or swing trade forex, including basics to get you started, strategies and a plan to get you practicing and successful, check out my Forex Strategies Guide for Day and Swing Traders 2.0 eBook.
By Cory Mitchell, CMT