So Many Traders, So Many Styles

With so many different types of trader and so many different trading styles, it is no surprise that the Forex market has many layers of price action at play. If you learn to read these layers then you can add that to the price action confluence you look for. In turn, you will also add to the probability of your trade working out.

In an attempt to keep these initial lessons simple we have been using the daily chart. We have used a green swing line to represent the scale at which we wanted to trade. It has been 3 of those green swing movements that have been the study of your introduction to this Forex trading strategy. Due to the power of the daily candle as an entry trigger, the use of layers is not as important as it is when you speed up your time frame. They are however still applicable and this will serve as your introduction on how you would use them.

Entering the Trend Continuation Buy with Layers

Since we are trading what is represented as the green swing on our chart examples, we must look for a layer of price movement that is below it. Some may prefer to do that by having a 2nd chart open on a slightly faster time frame. This is explained much more inour members area here at WaveFX Trading. For now, and for the sake of simplicity, it is also possible on just the one chart. In this next image, a black line has been added to represent the next layer of price movement relative to the green line we are trading.

This black line displays a faster scale of the buying vs selling war and it’s time to re-use your knowledge of chart patterns. In the previous lesson, there were 3 candlestick entry triggers that you would have had your eye on to enter this trade, with the use of layers there is clearly only 1 candlestick entry trigger that you would be interested in. Let’s quickly review our entry trigger mechanism now including this concept.

• This indecision candle reacts exactly from our chosen area confirming that it is active.
• It is also at the turn of what will be the 3-point turn on the black layer of price movement/swing.
• All we need now is to pass its high on the next candle which does happen and that is your entry price.

Entering the Double Top Sell with Layers

As we move on to the double top and apply the exact same concept you will see the next layer of price movement mapped out by the black line. Just as before some of you may prefer to do this on a 2nd chart running on a lower time frame. For the sake of page space and simplicity, we will stick with one chart for now.

The black line brings back the use of chart patterns to help you understand the turn and choose the safest candlestick entry trigger. In the previous lesson there were 3 candlestick entry triggers that you would have had your eye on to enter this trade, with the use of layers there is clearly only 1 candlestick that you would be interested in. Let’s quickly review our entry trigger now mechanism including this concept.

• This indecision candle reacts exactly from our chosen area confirming that it is active.
• It is also at the turn of what will be the 3-point turn on the black layer of price movement/swing.
• It is also at the turn of what will be the head and shoulders on the black layer of price movement/swing.
• All we need now is to pass its low on the next candle which does happen and that is your entry price.

Entering the 3-Point Turn Buy with Layers

Our final trade to review with the addition of layers introduces a different situation. The original entry trigger from the previous lesson is not in line with our new layer and so the entry may have been missed. The use of layers though provides a different entry trigger opportunity with more proof attached to it.

In the previous lesson, there was an entry trigger at a great location but here it is not yet inline with the black layer that we have added. Once the 3-point turn starts to present itself on the black line there is another indecision candle to use as an entry trigger. Let’s quickly review this new entry based on the inclusion of this layered concept.

• This indecision candle forms at what will be the 3-point turn on the black scale of price movement/swing.
• Location is still good based on the split double tap of the area marked X.
• The previous high on the black line pierced the previous high on the green line signaling intent to push up.
• All we need now is to pass its high on the next candle which does happen and that is your entry price.

Food for thought: If you did take the original entry trigger from the previous lesson, this new entry trigger based on layers could have been used to add to your position.

More Price Action Confluence, Entry Trigger Add-on

In the previous lesson, we covered entry triggers and in the one before that we covered price action confluence. The use of market layers simply adds on to both of those pieces of the puzzle but does remain optional at the daily chart level. The lower the time frame the more valuable the use of market layers can be, and as you can see they can still be very effective even at the daily chart level.