Educational Series: Trading with Boxes (Part 2)
Remember from Part 1, that boxes
- identify momentum
- is trend-following
- is reactionary, and does not predict or anticipate a move.
In addition to using boxes to identify support/resistance levels, we can use boxes to identify breakout levels.
Breakout levels are identified when the price breaks from a previous day's low/high. If the price breaks from the low/high of multiple days, then you can expect a more significant move in that direction.
In Example 1:
- Price rejects the resistance level (formed by the confluence of 2 previous day's high)
- Breaking below the previous day's low
- Selling opportunity, SL beyond the box high, TP at the lower support level formed by the confluence of 2 box lows.
In Example 2:
- Price rejects resistance level (formed by the confluence of 4 previous days' high)
- Breaking below the previous day's low
- Selling opportunity, SL beyond the resistance level, TP at the lower support level, formed by the confluence of 2 box lows.
Note: In this case, the Risk:Reward ratio is lower than 1.
When using boxes, because it is reacting to price, it can have a tendency to be slightly lagging.
It is always a good practice to combine at least 2 different types of indicators in your analysis.
- identify momentum
- is trend-following
- is reactionary, and does not predict or anticipate a move.
In addition to using boxes to identify support/resistance levels, we can use boxes to identify breakout levels.
Breakout levels are identified when the price breaks from a previous day's low/high. If the price breaks from the low/high of multiple days, then you can expect a more significant move in that direction.
In Example 1:
- Price rejects the resistance level (formed by the confluence of 2 previous day's high)
- Breaking below the previous day's low
- Selling opportunity, SL beyond the box high, TP at the lower support level formed by the confluence of 2 box lows.
In Example 2:
- Price rejects resistance level (formed by the confluence of 4 previous days' high)
- Breaking below the previous day's low
- Selling opportunity, SL beyond the resistance level, TP at the lower support level, formed by the confluence of 2 box lows.
Note: In this case, the Risk:Reward ratio is lower than 1.
When using boxes, because it is reacting to price, it can have a tendency to be slightly lagging.
It is always a good practice to combine at least 2 different types of indicators in your analysis.
