Turning Points: How to Recognize and Use Them. Part 2

Hello, friend, glad to see you here again!

Today we will review and evaluate the strategy of using turning points based on the “straight line” indicator. We have already acquainted with what a “turning point” is and why do we need it. Now let’s understand how to identify these points correctly and how to focus on building "straight lines".

In order to build a price channel, you need to draw only two straight lines at the same time. Also, keep in mind the following:

1. Lines must be drawn along the highs, which had previously been at turning points before. The more reliable the point, the more often it was a turning point. (resistance line)
2. Lines should be drawn along the minima that had already been used as turning points before. The more reliable the point, the more often it was a turning point. (support line)
3. Focus not only on intersections but also on presence nearby: this indicator guides many traders, and at times of increased supply or demand, the price may not reach the line a bit.

Picture 4. USD/CAD chart, with plotted price channel, turning points (numbers on the chart) and signals for the “up” and “down” rates (indicated by arrows).

As can be seen in Picture 4. There are 16 turning points on the price chart. At least two of them are required to build the channel boundary. That two signals are decisive for designating the price channel. At the same time, out of 16 rebound points, we have 9 signals, and each of them is a moneymaker.

However, despite the suitability for any trend movements, the most efficient use of support and resistance lines is associated with lateral trend movements, because a more accurate corridor with clearly defined boundaries is formed. In order to build this corridor, it is necessary to draw a straight line. It is also desirable for this line to be as long as possible, since significant levels may appear again as soon as the price is in the given neighborhood.

In order to build support and resistance lines you need (Picture 5):

1. Click on the Compass, next to the name of the asset and gear settings
2. Click on the “Add line” button
3. Select line color.
4. Pick a point on the chart where you want to place the line.

Picture 5. Setting a straight line on the chart.

After building lines on the chart, you can start trading.

Picture 6. Trading signals on Support and Resistance lines.

As it can be seen in Picture 6, after the upper and lower boundaries of the corridor were identified, the signals are quite accurately associated with the lines.

So, the rules are as following:

1. Buy (or invest "upper") every time the price approaches the support line;
2. Sell (or invest "lower") every time the price approaches the resistance line.

In conclusion, I would like to say that this strategy is good by itself: it is easy to use and reflects objective regularity. It will become a pearl for any strategy, even the most complex. It is also universal and applicable in almost any case. Do not forget what a magical effect the use of this pattern produces on others, and the accuracy of forecasts adds confidence that you are a professional in your field.

For more complex and advanced strategies, use it together with these indicators:

• RSI
• ROC
• Stochastic
• Moving average
• MACD
• Bollinger bands
• SMA, EMA
• ATR
• Heiken-ashi
• Parabolic SAR
• Alligator