Using Historical Highs & Lows
In this weekly video:
00:28 – Trader asks a question about using previous highs and lows
01:08 – Highs and lows are set, not subjective
01:38 – Bouncing at a round numbers
02:13 – Factors creating highs and lows
02:38 – How I trade and use highs and lows
03:33 – Using these levels to help us trade better
04:28 – Where to put your profit target?
05:35 – Email me with your questions
I'm gonna explain how to use historical highs and lows in the price action to aid you with your Forex trading entry and exits. Let's get into that more right now.
Hi traders, it's Andrew Mitchem here from the Forex Trading Coach with the video and podcast number 316.
Trader asks a question about using previous highs and lows
I've received an email here from Colin. Colin said to me, “Hey Andrew, can you talk about historical prices? Highs and lows, support and resistance, and how they correlate with aiding entry and exit levels within the market.” Colin that's an excellent question.
Quite simply, we use those levels all of the time. Why? Well, what I love about historical highs and lows is they're actual levels. You can see them on your charts. Everybody can see them. It doesn't matter where in the world you are, what timeframes you're trading, doesn't matter what trading platform you're on. All those type of things.
Highs and lows are set, not subjective
Everybody can see where the price is stored, highs and lows, where they are. They're not subjective. When you start drawing trend lines … Now, we do use trend lines but when you start drawing things like trend lines, and you're looking at other levels, and certainly when you can't start adding indicators on your charts, they become quite subjective. The settings will be different depending on your price fee, depending on the timeframe chart you're on, depending on your broker. All those type of things, they can be different but highs and lows are there. They're set.
Now, when you go a little bit further into them, and delve a bit deeper, you'll probably find that when you look at them, and look at the actual price itself, you'll quite often find that historical highs and lows.
Bouncing at a round numbers
It's remarkable how often they do bounce at what I call a round number. It's a price level ending in a 00 or a 50.
You know, they happen all of the time when you look at your charts. Why? Because that's where the big players are pushing the market. That's where they reverse the market. All those type of levels, the 50s and the 00s, historically become very good high and low levels, bounce levels.
Factors creating highs and lows
Those highs and lows that you see on your chart may also be caused by other factors. They could be caused by news events suddenly changing the market or they could become like fib levels, Fibonacci levels, all those type of things. When it comes to it though, the actual reality is, sometimes you actually really don't need to know why they've occurred, all you need to know is that they have, and you need to seed them, and be able to use them.
How I trade and use highs and lows
The way that I like to trade, as you know, I look at individual candle shapes and patterns, where they've occurred and why. The where and why, we now start to add historical highs and lows into that. Let's say that you're buying a currency pair. Let's say you're buying the British pound, US dollar, let's say. It's come down to what was historical low? It may be a low that happened just yesterday, it could be a low that happened last week, last month. Who knows? Depends on the timeframe chart that you're on but you've seen the price come down and it's bounced at a level that, on your chart when you look to the left hand side you can see that it has bounced there. When it last hit that level it pushed up quite substantially.
Using these levels to help us trade better
Now, when it's hit that level, plus you're then combining that with a candle pattern and it's likely to then say, “This level's likely to hold.” How can we then use that to help us? Well, first of all, we know that in the past it bounced there so when we get the candle pattern, it's likely to move in the same direction because price historically does that. Also, if we put our stop-loss below that level, we know that last time the price got there, it didn't go any lower obviously because it went to the low that you can see on your chart. This time the likelihood, especially if it's like a round number as well or it's bounced there a couple times previously not just once, is that if we put our stop-loss below that level that's likely to say to us, “Do you know what? This is a really good strong protective level.”
If the price turns around, and goes south, and breaks through that level, and you get stopped out, that's just too bad. You know, that's trading. Probability would suggest that your stop-loss, down below that level, is extremely safe because history has proven that.
Where to put your profit target?
Likewise, when you're looking for your profit target, don't go an put your profit target above a level, on the same trade, that the prices failed to break through recently. Why? Well, because the chances are it might get up to it's previous high, and then potentially stall there, and then turn back again. By putting your profit target way above that historical high, is not doing yourself any favours. Again, probability starts to get smaller and smaller.
Now, it's not to say of course the price won't break through that and get up to that level but why would you risk that? Why would you not look for a safer trade and say, “Well, historically the prices got to this level, and a couple times in the past, and then it's dropped again. Let's make sure that we're out of this trade before we need to break through that same level again.” It's giving yourself a great reason to enter the market, it's giving yourself an excellent stop-loss protection and it's given yourself a really logical, high probability chance of your trade hitting your profit target. You take the money and you say, “Thank you very much.”
I hope that helps. This is Andrew Mitchem from the Forex Trading Coach. If you have any questions that you'd like me to talk about on future videos and podcasts just like this.
Email me with your questions
Just either reply on this page somewhere or send me an email, just like Colin did, to [email protected]