HOT SPOTS
There are areas (or zones) that present themselves on the charts which we like to referto as “Hot Spots.”These hot spots are basically the areas/zones on the chart where a number of things willline up together in confluence to produce a high-probability, low-risk location to takeyour Price Action trades from.Generally, a market hot spot is created in trending conditions when price, a swing leveland the mean value are all contained within the same area. This creates a boiling pointof attention in the market and it is a spot that attracts a lot of buying and selling action.It is common for the market to reverse direction at the hot spot, so if we get a priceaction signal here to suggest just that, it creates a very high probability, low risk trade.The hot spots are either going to be a bullish hotspot for long signals to form or abearish hot spot for short signals, depending on the chart situation at the time. Below isa basic example of a hot spot where long signals can form.
The above example shows a situation that would produce a hot spot for long signals. Price has broken out of a resistance level in an up trending market and is beginning to
look overextended. We are watching for a retrace to the hot spot, anticipating a long signal to form there so we can jump in on the trend. The reason this is identified as a hot spot is because there are two or more factors lining up that will boost the value of any bullish signal that forms in this area of the chart. We have a swing line waiting here to be tested as support, and in the same area we have the EMAs waiting to be tested as dynamic resistance—not to mention that there is an the EMAs waiting to be tested as dynamic resistance—not to mention that there is an established up trend, so we are only looking for long trades to conduct in line with thetrend/momentum.A bullish signal at the bullish hot spot would complete it and be a nice, low risk buyingopportunity.Obviously this will be the inverse for down trending markets. The bearish hot spots willappear when resistance levels line up in the same area as the EMA’s in a bearish market.This is the environment we want to see a price action sell signal form in.
The chart below shows a live example of a bullish hot spot
Price has broken out of a resistance line in a bullish trend. Now we are waiting for price to retrace to the area where the EMAs and the level are waiting to be tested as support. When price reaches this area, all we need is a bullish signal to complete the hot spot When price reaches this area, all we need is a bullish signal to complete the hot spot formation.
The live NZD/USD chart above points out a bearish hotspot where we would look for bearish price action signals to form. See how the EMAs and the swing point meet together in the hotspot area? This is creating a potential turning point for the market, because the overall market momentum is down. All we need now is one of the candlestick short signals to form inthis hot spot for that extra confirmation to sell.
The live USD/CAD chart shows a candlestick signal that formed at a hot spot on the chart during a bullish trend, the signal being the bullish rejection candle. The hot spot
contains the 20 EMA and a daily swing point holding as support (support confirmed by Charting ProtradersDisclaimer Give Us Feedback Contact Us contains the 20 EMA and a daily swing point holding as support (support confirmed bythe rejection candle). These are perfect conditions to go long while the market is
trending upwards.