FinanceGlossy

What does the turn in price look like? In the following chart, a supply zone for a short entry was highlighted with the yellow box, and the blue arrow indicates where a good short trade could have been entered. This is the expected “turn in price.”

our stop would go above the zone in which we entered. Here it would have been about 17 pips. Using our 3:1 ratio, we need to find a reasonable profit target of at least 3 times that, or 51 pips. The blue box shows a small demand zone fulfilling our 3:1 ratio, while the green box give us a target of 72 pips, giving us a potential 4:1 trade.




So the turn in price would have been in the supply zone, at the blue arrow giving us a simple 3:1 reward to risk ratio, if not better if the trade kept running. But where do most new traders look to enter? The interesting this is that many trading books teach traders to take what we call a “break-out” trade. This is where price breaks down below a support level, or above a resistance level. This is usually far, far away from the turn in price! The short blue line marked “B” is a common entry used by new traders. In this example, the trade would have worked out entering there, but where would the stop go? If done properly, the stop would still be in the same place as the trade entered at the supply zone. What happens to the reward to risk ratio when entering at the breakout price? Entering there at approximately 136.95 would have given you a 44 pip stop, and a profit target of 26 pips at the blue box and 45 at the green. Over time, this strategy will make you a very frustrated, unsuccessful trader.

Trading at or near the turn in price gives you better reward to risk ratios, and combined with proper trade management, can turn trading into a career instead of a hobby.


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