Original subtitles

0 Hello, everyone, to the second lecture in Section 6. 1

Very quickly, I want to go to a key error that support and resistance traders make while trading a breakout 2

after a consolidation phase. 3

It is very simple to understand, but it carries a significant importance in support and resistance 4

trading during a sideways price activity. Therefore guys, you will never buy at support when market is 5

making lower-highs in a consolidation phase. 6

This means that the sellers are entering in large numbers as the market fails to reach the horizontal 7

resistance zone that you plot. 8

Once the first leg of the sideways price activity defines boundaries for initial support and 9

resistance zone. 10

Therefore, what you see here is repeated tests of the horizontal support. 11

As price makes lower-highs, this price activity is associated to selling strength entering in the markets, 12

hence giving an indication that price is highly likely to break out from the support zone and decline 13

further. 14

So when you see price making lower-highs in a consolidation phase, then you should plot a diagonal 15

support to look for trade entries. 16

No, we will study this guideline using examples. 17

Here we are looking at 4-hour chart of gold. 18

After a downtrend, price entered a consolidation phase on gold, then after first two legs of the price 19

movement, the support and resistance zones are plotted on this chart. 20

Now to study the guideline, which says to avoid buying when price makes lower-highs, notice how 21

price fails to reach the resistance zone as it posts the first lower-high. 22

I will use a trend line to draw a diagonal resistance here. 23

Moving on, gold posted another lower-high after price bounced from the support, hence I will extend 24

the diagonal resistance to the right on this chart. 25

Guys, this diagonal resistance is signaling the control of sellers as buyers fail to push prices higher 26

on gold and all the price touches on this 27

diagonal resistance presented sell opportunities before price break out to continue the bearish trend. 28

This is all that this guideline is about. Nw, let us study one more example on daily charts as well. 29

Here we are looking at USDCAD. 30

Once again, we are studying the same guideline. 31

Here we are able to plot our support and resistance zones, once the first leg of sideways 32

price movement ended. 33

Once again, notice the lower-highs in this price range, signaling the selling strength. 34

Once again, I will use a trendline to draw diagonal resistance on this this pair. 35

And once the price breakout was recorded during the strong bearish candle, a sharp downtrend continued 36

on this forex pair. 37

So this is all you need to know when the market makes lower-highs within a consolidation phase. 38

And let us continue studying then the opposite scenario. 39

Similarly, when the market makes higher-lows in the consolidation phase, it signifies the buying strength 40

in the market as sellers fail to push the price lower. 41

In this case, you will avoid selling at the resistance zone as it is highly unlikely that the price 42

will break out through the resistance zone in the later phases of sideways price activity. 43

Now, let us study a final example to understand the guideline. 44

Here we are looking at EURCAD to study the guideline. 45

Price went into a consolidation phase from here, and we are able to see the support and resistance 46

zones after this bearish candle. 47

Now, notice, the higher-low starting from here, and finally, a sharp upward trend was recorded on 48

this one forex pair. 49

I will quickly draw a diagonal support to explain the buying strength associated to each higher-low. 50

Guys, the guidelines you have studied here more often than not signal what is about to happen in the 51

near future, so please study the price action carefully. 52

This also concludes this lecture in Section 6 of the course. 53

And I will see you in Section 7, where I explain very recent or present live trades that I took 54

using this strategy with complete trade management.