For many traders, finding the right trade entry point along a trend is the most pressing problem they have. Their main question is, “After identifying a trend, when is it best to enter a trade?” In this guide, I'll use 2 indicators not only to identify where it's best to enter a profitable trade, but also make money trading.
This guide focuses on the time tested TLS (T = Trend, L = Levels, S= Signals) that has been used by successful options traders for decades.
I learned about this method through a reader who emailed me an options trading strategy that turned $100 to $249. I tried out the strategy and found it profitable (that's why I'm sharing).
Now let's get started!
- 1 Trading using TLS on the EUR/USD pair
- 2 How to identify trade entry points
- 3 Identifying possible trade entry points
- 4 Turning $100 into $249 on IQ Option
- 5 Trading downtrends using TLS and support/resistance on IQ Option
- 5.1 First entry point: Prices return towards previous resistance indicating reversal
- 5.2 Second entry point: The markets are ranging before breaking through the resistance on downtrend
- 5.3 You should note that you should enter a short sell position at this point
- 5.4 Entry point 3: Price rises to previous resistance then continues to drop
- 6 Working with the trend is key to success
- 7 Managing emotions while trading using TLS on the IQ Option platform
Overview of Trend Level Signal
This trading strategy works if three conditions are met.
The first condition is that there must be a clear trend.
The second condition is that there must be an easily identifiable level. In this case, it's a support or resistance.
Finally, there must be a clear trading signal. This could be a pin bar candle that signals the start of a trend after price consolidation. It can also be a large bodied candle that shows strong buying or selling activity.
Trading using TLS on the EUR/USD pair
Using the chart below, you'll notice that there's a clear uptrend. This becomes exhausted and reverses creating a downtrend. I've drawn two trend lines to make the trends easier to see.
I'm using the EUR/USD 5 minute time interval chart.
The reason why clear trends are necessary for the TLS strategy to work is that they offer many trade entry points. For example, in the case of an uptrend, you can enter bull positions almost anywhere along the trend. Provided it's not exhausted.
How to identify trade entry points
When using the TLS strategy, your main objective is identifying the right trade entry points along the trend. You should begin drawing a trend line. For up trends, the trend line should touch at least 2 high-lows. For a downtrend, the trend line should touch at least 2 low-highs.
After drawing your trend lines(s), your next step involves identifying support and resistance levels. These are usually points where price consolidation occurs before the prices adopt a trend.
Take a look at the image below.
Using my EUR/USD chart, I've also included the RSI indicator. Why? RSI is a good way to identify possible trend reversal points. Please take a look at the image below. Once the RSI crosses the overbought line from above, a downtrend starts to develop.
Why did I include the RSI indicator?
Besides being a great tool for identifying potential trend reversal points, the RSI makes it easy to avoid false breaks. That is, as prices move along the trend, there will be points of consolidation. The prices seem to reverse temporarily before continuing along the trend. I want to avoid these false breaks.
For example, consider the uptrend in the chart above. False breaks will appear along the resistance levels. Here, you'll notice one or more bearish candles forming. If I were to rely on the candles chart + support/resistance alone, I would likely be tempted to enter into a sell position. However, the trend isn't fully exhausted meaning entering a sell position would end up in a losing trade.
For more about trading using trend lines, read the Guide to Trading Using the Trendline on IQ Option.
The Guide to Trading Using RSI and Support/Resistance on IQ Option should also get you started on using these two indicators.
Identifying possible trade entry points
Using support and resistance to identify possible trade entry points
Now using the RSI along with the trend line can give you an idea about where to enter trades when the trend is strong. But as the trend approaches exhaustion, you won't really know when it's bound to reverse. That's where support and resistance levels come in.
For example, consider the chart above. The resistance line shows that once prices touch it, they will typically fall. But in this case, the uptrend continues. That's where the candles come in.
You'll notice that once the prices hit the resistance and break it, one bearish pin bar develops. It's then followed by a bullish pin bar. This signals that the uptrend is bound to continue offering a good place to enter a buy position.
In the chart above, you'll still notice that I've drawn a support line. Once it intersects with the trend line, a doji and bullish bar develop. This is a signal that the uptrend is likely to continue. The RSI also crosses the overbought level from below which further confirms the continuation of the uptrend.
Trading trend reversals
The uptrend finally became exhausted. However, the reversal didn't occur immediately. It's only after drawing a support line that I could identify a possible entry point. Once the prices broke the support, you'll notice a small retracement. The true downtrend starts when the bearish pin bar develops followed by a solid bearish candle. This was a good point to enter a sell position.
Turning $100 into $249 on IQ Option
One of the reasons successful traders consistently make money is that they usually re-invest their profits. That is, if their first trade is successful, return their initial investment to their account. Only profits are used in subsequent trades.
The table below explains it better.
The table above turns $100 into $249 using four trades only. Here, you'll use the profits from successful trades as your investment for the next trades.
So, the profit from the second trade will be invested in the third trade. If you encounter a losing trade, you can opt to stop or start the process again. Using this table, you can see that 4 successful trades will make you 2.5 times your initial investment.
If you're like most traders, you might think that losing $100 in your first trade is highly likely. Rightly so. But if you use the TLS method I've discussed above, you'll stand a better chance of profiting.
If you identify a trend, use the trend line to confirm it. Then draw support and resistance lines to determine the best entry points. Use the RSI to identify potential trend reversal points. This increases your chances of making successful trades.
Note that this money management strategy is simply a suggestion. There are other ways to make it work for you. For example, you might want to invest a fraction of your profits on subsequent trades to secure most of your profits. It all depends on your risk tolerance and money management approach.
Trading downtrends using TLS and support/resistance on IQ Option
First entry point: Prices return towards previous resistance indicating reversal
Using the chart below, I've drawn a support line for the uptrend. This becomes the resistance for the downtrend that develops once the trend reverses. You'll notice that a false break occurs with two doji candles developing. It's best to wait until the doji's are fully developed to determine which direction the prices will take. The downtrend is finally confirmed by the large bearish candle. This is the point to enter a sell position.
Second entry point: The markets are ranging before breaking through the resistance on downtrend
Using the same chart, I drew another support resistance line that connects the lows of the uptrend and the lows of the downtrend. Right where this line intersects with the trend line provides a possible breakout point. This is further confirmed by a bearish candle developing showing that the downtrend is bound to continue.
You should note that you should enter a short sell position at this point
The downtrend is still in its early stages. In addition, the support/resistance line I drew connected lows from candles in the uptrend and downtrend. The price might reverse as you can see in the chart below.
Entry point 3: Price rises to previous resistance then continues to drop
To identify a good entry point, the support or resistance is drawn connecting the candles along the downtrend. In the chart below, I've drawn a resistance line. The prices tend to rise to this point before falling again. At this point also, both the trend line and resistance intersect. A large bearish candle also forms showing sellers are taking over the markets.
Working with the trend is key to success
“The trend is your friend” might sound cliche but there's nothing truer than this. Trends have existed since the markets were discovered. The great thing about trends is that they're easy to identify by simply looking at your chart.
Another great thing about them is that they will eventually reverse giving you the opportunity to profit whatever market conditions prevail. There are “pauses” after which trend continuation or reversal will occur. Understanding this helps you identify ideal trade entry points.
Managing emotions while trading using TLS on the IQ Option platform
You should expect the uptrend to continue until the market decides to range or reverse. You should also expect a downtrend to continue until it ranges or reverses. If you try to predict what maximum price point an uptrend will reach or the lowest point a downtrend will get, you'll end up losing money.
Never, try to beat the markets by trading against the trend. You'll only lose money. In addition, never try to recover your losses by trading a larger amount. Stick to your money management principles at all times to protect your trading account.
When trading with TLS, your trade entry points should be where the prices touch the trend line and there's a clear signal. The snapshot below shows trade entry points that can lead to losing positions.
One of the main reasons many traders lose money on IQ Option is letting their emotions get the better of them. So it always pays to have a sound plan before entering into any position. Stick to your plan and if it doesn't seem to work, stop trading with real money and test the strategy in your practice account.
If you've read this far, you've leaned a lot about trading with the Trend Level Signals. It focuses primarily on identifying a trend, the support and resistance levels and, identifying the right time to enter a trade.
You've also learned some basic money and emotional management strategies that can help you protect your account and make some money trading.
Let me know your views in the comments section below.
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