Example Trading Set-ups Using The Box
Below are just some of the trading set ups that can be traded using The Box. We would love to here about new ideas, please send us your ideas!
Supply and Demand Zones
When the supply and demand for a currency pair is in equilibrium, the price of that pair will stay in a tight trading range. This remains the case until either supply or demand is exhausted and price breaks out from that range and moves away. Often, price will later revisit that supply / demand area and discover that either supply or demand is still exhausted and price will move back out of that zone in the same direction. By using the Box to extend the supply / demand area to the right of the chart and selecting a trade to be placed in the direction of the original break out, we can capture profit from a repeat of that price action. If price continues through the zone, without breaking out above the box, no trade will be place.
Support and Resistance Areas
When price has been moving in one direction for some time it may come across an area, or price level, where that movement is reversed. A falling currency pair finds an area of 'support' and starts to rise or conversely a rising pair hits 'resistance' and starts to fall. These areas offer two types of trading opportunity. The first opportunity is where that the support / resistance effect is repeated when price revisits that area. The second is where a previous area of support or resistance has failed and price revisits the are from the opposite side (see image). In this second case, support often becomes resistance and vice-versa. By extending the Box along such a zone and defining the direction we wish to take a trade, we can often capture such a move.
Break Out from Trading Range
Often, the price of a currency pair will remain in a tight trading range for an extended period of time. When price eventually does break out it can lead to a swift and very tradeable move in one direction. By placing the Box around such an area, a trade can be set to open on a close outside of that area. Note that the trade will only trigger on the close of a candle outside the Box, should price make a fake move and then retrace back into the Box before the candle closes, no trade will be placed. These zones also offer excellent opportunity for the Supply / Demand trades outlined above.
The Box is ideal for capturing a pull back in an existing trend, especially where the trend line you draw indicates that the pull back will coincide with an area of previous support or resistance. The trade in this example will only trigger one price has pulled back into the Box and then a candle closes back out of the Box, in this case back in the direction of the trend. If the trend is not resumed, ie price continues through the Box without closing above it, no trade is entered.
Trend Line Breaks
Price action at a trend line is a very powerful tool when analyzing the sentiment of a currency pair and so likely price action. By using trend lines to plan trades it is possible to place the Box in positions that will require either a trend line break or trend line support to have occurred. In the example here, a short trade, based on previous support becoming resistance, will only be entered on a close below the Box, such a close will have required the user drawn trend line to also have been broken, offering additional confirmation of a change in price direction.