Secondly, a much better way for a line to regain its strength is for the line to completely reject the price. If you look at the picture below you see a range stuck on the line (highlighted in red), and a strong reversal from the line (highlighted in blue). The bounce from the line immediately makes it tradable again. You should be looking for the same kind of ‘V’ or ‘U’ shape in order to identify a scalp line.
|Click to Enlarge|
You should also take into consideration the strength of the bounce. If it is a very weak bounce, it is not significant. I want to see a strong move towards the line, a bounce, and a strong move away. There is no exact amount of pips I want it to move, it is a judgment call I make at that time.
Previous Breaks: Every time a line breaks in the same week it gets more and more likely that the next break of the same line will not make for a successful trade. So after the first break, the chance that the second will make for a good trade is less likely, and the third break is even less likely. I will sometimes take the second break of the same line in the same week. I rarely take the third break, and I never take the fourth. I also expect to see at the very least 6 candles, and a 100 pip move between breaks. If there is not 6 candles between the first and second break, or the break of the first did not move at least 150 pips from the line, I will not trade the second.
|Click to Enlarge|
Taking a look at the chart above we have 4 breaks of the same line in the same week.
1. The first break was a normal S+R line break and I would have entered.
2. The second break had 6 candles in-between breaks and moved at least 100 pips ways so I would have taken it.
3. The third break moved at least 100 pips but we only have three candles between breaks so I would not have traded it.
4. The fourth break I would not have traded because I do not trade the fourth break.
Let’s imagine for a moment that the fourth break was only the second break. I still would not have traded it. Yes it did move 100 pips away, and there are at least 6 candles in-between breaks, but I would not have traded it because the 6 candles are too close to the line. I am looking for the candles to clear the line, stay around at least 100 pips away from it for at least 6 candles, and then come back.
Vicinity to S+R Zone: S+R zones are no trade zones for me. If the line is too close to the S+R zone I will not trade the line break. The general rule is: If the normal target of the line break will take you into the S+R zone it is not tradable. So, if a scalp line is 50 pips or less from an S+R zone it is not tradable. If an S+R line is 70 pips or less away from an S+R zone it is not tradable.