What Are Constant Lines?
Constant lines are a part of my method I used to simply refer to as S+R lines. Now I am calling them
constant lines. These lines are called constant lines because they have been on the charts for decades. And even though they move a little from time to time they’re pretty much constant.
Constant lines are lines at which we expect the price to find a permanent or temporary barrier. This is based on the price finding a barrier at this line in the past. These lines act as a dam would in a surging river. They hold the price from moving further. But when the price breaks through one of these lines it can come surging through (and we can make pips)
So what exactly is a constant line, and why would the price magically stop at some seemingly arbitrary horizontal line?
Simply put, constant lines are areas traders expect the price to have trouble getting through. A constant line only exists because a long time ago the price happened to bounce away from it strongly. Because humans are programmed to look for patterns the next time the price approached that line it was traded as if the price might reverse from the line. This happened over and over until this line became widely recognized as a line at which the pair has trouble breaking through.
For examples let’s say in 1980 GBP/USD surges to new highs and hits the level 1.9000. When GBP/USD hits that level it has a massive reversal from it. 5 years later the price reaches 1.9000 again and traders see that as a barrier which GBP/USD could not cross last time. So as it reaches that level they start closing positions thinking they might see a repeat of last time. The fact that so many traders close positions and/or take short trades actually turns GBP/USD around. So, again the price has reached 1.9000 and reversed from the line. The more this happens the stronger the line becomes. Eventually they become commonly viewed as areas at which the price will have trouble getting through.
How I Use Constant Lines
The basic idea behind these lines is to watch how price will react when the line is reached.
Ideally what I like to see is the price approach the line, break through and then rush past the line. I usually trade the break of the line. So I enter when the line is broken and target a certain amount of pips.
I will also trade bounces from the line. So if the price reaches the line and our candlestick analysis tells us that it may bounce from the line. Ideally with this kind of setup I want to see a trend heading to the constant line. Then a candlestick pattern that indicates a reversal forming on or just before
the constant line.
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