Common Pattern: Developing a Strategy

[Soultrader]

One pattern that I pay attention for is price rejection when prices break out of value. When there is a significant support or resistance point right outside the value area, I will wait to see how prices act around these levels.

Take a look at the chart attached. In this example. prices broke out of the value high pivot but hit a critical resistance point at the 11420 mark. This level is a cluster zone from the August 18th high and the R1 pivot.

Price was met with heavy selling pressure and declined back into value. This pattern now indicates price rejection above value and there is a high probability that price will trade within or below value for the rest of the day.

Why? Market participants view price as unfair above value and are trying to establish balance. Once there is price rejection above value, balance will be created inside or below value.

Thus, my trading strategy is to short any attempt back to the value high pivot and buy any attempt to the value low pivot. If prices do break to the downside, I will then use the value low pivot as resistance for a short opportunity.