The following is a post which I originally published to the InformedTrades community in november'12
Currently taking some days away from futures charts - who wouldn't spend such time with forex charts?
A few good trades in the last days have made USD/CHF my current favourite cross. What I'm looking at is the dynamics of Support and Resistance levels - no indicators, all price action. I watch the 1H charts and manually mark up S/R levels and while doing so I make just a slight note in the back of my head on how strong each level seems to be. As the current trend is downwards I enter when there's a setup for fading PA going towards the latest Support zone.
I rarely ever mention Risk:Reward as I have always seen this as half the story - odds of positive outcome being the other half. With that said though, should one care to look at the numbers they will often be very favourable as the S/R levels are very well defined. For S/R levels I give almost no thought to spikes going outside of these, and base my levels entirely on closing prices - the 1H chart clearly justifies this as there's often one spike outside S/R level and 2-4 bounces(closing price) at the level.
The chart here has my latest trade plotted - FXCM in stardard setup only shows closed trades for the last 24H period. I closed the position due to the potential short term upwards momentum that could be caused by the double bottom. By the way the trade was closed around 8 pips from the bottom - as I was sleeping when that formed. The trade was closed at +18pips thus an "optimal" close would have made for ~50% more profit.
As you can see another setup might be under way, because the S-level I sold at has now been broken. Should this form a setup the important level would likely be the level marked up in orange in the right side.
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