Here we are going to give you two indicators to use with simple support or resistance to isolate contrary trades that offer great returns and low risk.
We are going to apply them to a live example shaping up right now.
The indicators we are going to use are:
RSI – To spot the turn.
Stochastics to time entry.
Both these are explained in other articles; here we are going to show you the set up.
Pull up a chart service such as Futuresource.com and go to the Dollar v Yen chart.
If you look at the dollar yen you will see the price falling toward support nearby support is the recent double bottom then the December low.
Now look at the RSI each time it has fallen to oversold levels (the bottom black line) prices have bounced near these levels and risen.
Watch the RSI carefully as we approach oversold levels which we are now.
Now its time to look for support to hold.
To do this use the best timing indicator the stochastic.
At present both lines of the stochastic are pointing down showing weak price momentum.
Watch for the lines to cross to the upside with bullish divergence indicating that price momentum is turning to the upside above support.
This means the bulls should take charge and only a break below Decembers low on a close basis puts the yen bulls in charge.
Right or wrong, this trade will give low risk and high odds of bounce in the dollar.
If the trade were stopped out the risk would be low, but the bounce if this level holds should be strong.
The key is to wait for price momentum to change - with a bullish stochastic momentum turn to the upside and not simply enter and hope support holds.
The RSI helps you spot the trade and the stochastic gives an idea of the change in momentum and when to take the trade.
Using RSI, support or resistance and stochastics is simple but can be very effective at spotting high return low risk trades.
Try the combination for yourself and see how effective it can be.
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