Zones are big fat beer bellies

You have to pay close attention to one thing on the chart if you trade naked: price. Price is king. Price will tell you all you need to know.The wonderful thing that all markets have is this: a history. The market will tell you where the sweet spot is on the chart. These sweet spots will be the foundation for everything you do as a naked trader.A sweet spot on the chart is a support and resistance zone. You may be familiar with the concept of support and resistance, however, support and resistance zones are different from what many traders characterize as support and resistance. I will call these support and resistance zones by one word— zones. The eight important characteristics of zones are as follows:
1. Zones are an area, not a price point.
2. Zones are like fine wine; they get better with age.
3. Zones are spots on the chart where price reverses, repeatedly.
4. Zones may be extreme highs or lows on the chart.
5. Zones are where naked traders find trading opportunities.
6. Support and resistance zones rarely need to be modified.
7. Line charts help naked traders find zones.
8. Zones are often seen by many traders.


You may want to take a closer look at each of these eight characteristics.It is incredibly important that you understand how to draw zones, why you should draw zones on your charts, and understand when these zones become critical for your trading.


A zone is simply a big fat beer belly. Many traders have misconceptions concerning zones. Traders may be familiar with the concept of support and resistance but unfortunately, many misapply this concept to technical trading.The naked trader understands that zones are an area on the chart. This is a very distinct concept to a support and resistance line. A support and resistance line indicates a specific price on the chart, but zones are something different. Zones are not a specific price. These zones are, instead, an area, a range, or, as I prefer, a beer belly.

Let me explain. I prefer to think of these zones on the chart as if they were beer bellies. Before you disregard this idea, consider what a beer belly is: A beer belly is somewhat firm, maybe somewhat repulsive, and has some predictable characteristics. My friend Jason has a beer belly. He is quite proud of it; he tells me it is quite expensive, as he has paid good money for the wine and beer that have enabled him to grow this belly.

If I were to push into Jason’s beer belly with my fist (I would never push into a beer belly without permission, and I suggest you, too, first obtain permission before pushing any beer bellies), eventually I would find resistance. Even if at first I did not find resistance, eventually there would be a point at which the squishy beer belly would stop me from pushing further. This is a critical characteristic, for I know that I may be able to push a little bit into the beer belly, but eventually the beer belly will offer some resistance.

Perhaps you may also decide to push into Jason’s beer belly with your fist. You may have a different experience. Perhaps, when you start to push into Jason’s beer belly, you become somewhat unsettled and decide to pull back after only slightly brushing the hair covering his beer belly. This is completely reasonable, and I am sure that many others will have the same reaction. However, the important thing to note here is that you and I are pushing into the same beer belly, Jason’s beer belly, but we find resistance at different spots on the beer belly.

This is a significant feature of zones. Zones are just like beer bellies. Zones are spots on the chart where price has pushed and probed, and then reversed. Naked traders love beer bellies. They love these zones. Naked traders wait for price to reach these zones before initiating a trade. The zone is the sweet spot on the chart for the naked trader. It is absolutely critical that the naked trader identifies the zones on the chart. These zones are the foundation of naked trading.

The age of zones, and the importance of the age of a zone, is a hotly debated topic among traders. Some traders believe that only those zones that have been established recently are important, and other traders believe that zones that were established long ago are just as important as the newly minted zones. I believe that zones are recycled.If you take a look at any chart for any currency, you will find historical price levels.
What you will notice is that price has a tendency to reverse at the same levels repeatedly. This is a distinguishing trait of zones, and you may use this characteristic to define and discover zones on your currency charts.


When I was a young child, at about six, I used to watch my mother in the kitchen. It was fun. In fact, some of my very first memories are of my mother singing to me in the kitchen. One day, while in the kitchen, I had a terrible accident. On this day my mother was baking pizza, and it smelled delicious. In fact, you may find it hard to believe, but to this day I still love pizza. My mother was busy chopping up the ingredients for the pizza, making the sauce, because she had several pizzas to make. I wandered over to the first pizza. It was still on a hot pan because it had only just been removed from the oven.

Now, my mother had warned me to be wary of the hot pizza pan. I had either forgotten or disregarded her warning, and I decided to grab the pizza pan because the pizza smelled so good. As you may imagine, I completely burned my hand. I still remember it being extremely painful and still have the scars.

I learned a lesson that day. I still love pizza, but I am wary of hot pans.It was a valuable lesson I learned, and is something that I think about every time I look at a currency pair on the chart, I think about that pizza day.Every time I see a chart approaching a zone, I consider that the market may remember the last time it was burnt at that price level, at that zone.


FIGURE 4.1 Support/Resistance Zone on the EUR/CAD Daily Chart in 2006. The market finds support in July and August 2006 at 1.4350, and then in September and October of 2006 the market finds resistance on the very same zone at 1.4350.
[You must be registered and logged in to see this image.]
Take a look at the Figure 4.1. This is the daily chart for the EUR/CAD currency pair. Note that this pair found support at the critical level of 1.4350 back in July and August of 2006 (up arrow). The pair repeatedly found support at this level over many weeks. Then, in September and October of 2006, the pair trades back to this zone and finds resistance on three separate occasions at the 1.4350 level (down arrow).

Now take a look at the next chart, same pair, the EUR/CAD in Figure 4.2. Here the pair has found resistance back up at the 1.4350 level, four years later. The market moves back to this critical 1.4350 level, finds resistance there and promptly falls. The chart has a memory! This is a very clear zone for this currency pair. Do you think that knowing where price may turn around is an advantage for you, as a naked trader?

FIGURE 4.2 Support/Resistance Zone on the EUR/CAD Daily Chart in 2010. After trading higher and higher, the market finds resistance at the 1.4350 zone and price falls lower.
[You must be registered and logged in to see this image.]

Perhaps you may be thinking that other markets do not have a memory for zones. Maybe this EUR/CAD example is just an exception rather than the rule. If you are thinking this, please take a few moments to look at a few charts for yourself.

Another example in Figure 4.3, this is the USD/CHF daily chart from July 2008. Notice how the market came down and touched the 1.000 zone (arrow) and then rocketed higher.

FIGURE 4.3 [/b]The USD/CHF daily chart shows a distinct zone at the 1.0000 where the market finds support in 2008.
[You must be registered and logged in to see this image.]

Over a year later, in 2009 the USD/CHF falls back down to the same 1.0000 level and finds support on three occasions, as you can see[b] in Figure 4.4.

FIGURE 4.4 In 2009, the USD/CHF again finds support on the critical 1.0000 zone.
[You must be registered and logged in to see this image.]

The market traded sharply higher after the third touch on the 1.0000 zone. Again, the market has made a critical reversal at a price that has historically served as a turning point. This is what zones are, historical
turning points.

Another example is shown in Figure 4.5. This time it is the EUR/USD daily chart. In 2003 this pair topped out at 1.1930, there were several touches on this zone (see three arrows).

FIGURE 4.5 The daily EUR/USD has a clear zone at the 1.1930 level in 2003. The market finds resistance three times in quick succession.
[You must be registered and logged in to see this image.]

2011 the EUR/USD was freefalling from a high of over 1.5100 and the pair eventually found support 3000 pips lower, on a very critical zone (see Figure 4.6). The 1.1930 level served as critical support seven years
later.

FIGURE 4.6 The daily EUR/USD falls over 3000 pips and eventually finds support at the 1.1930 zone in 2010, seven years after first finding resistance on this zone.
[You must be registered and logged in to see this image.]

The chart has a memory! These zones are critical for the naked trader; once price reaches a zone, the naked trader is on alert for a possible trade set-up. Why would the naked trader want to know once price reaches a zone? Because price has repeatedly turned around at these zones! Knowing what a market has done in the past is critical for the naked trader, not because the naked trader assumes the market will turn around again, but because the naked trader is on high alert, and the market may turn around again.

The naked trader does not take trades based on price reaching a zone, the naked trader uses several tools to decide when to take a trade. However, the naked trader will not take a trade unless price has reached a zone.This is the first step (price reaching a zone) for the naked trader, when setting up a trade.
by Alex Nekritin and Walter Peters

Zones are those spots on the chart where price has repeatedly reversed. However, it may be difficult at first for you to find these zones on the chart.There are several sneaky shortcuts that you can use to help develop an eye for finding zones. Some zones are extremely obvious and easy to find. Other zones are a little bit trickier and may be difficult for you to identify if you have not had experience finding zones on the chart. Please keep in mind these three shortcuts when you are drawing your zones on the chart.

1. Start with a higher timeframe chart.
2. Use a line chart to find the zones on the chart.
3. Ignore minor zones.


Question: When you meet someone new, how do you decide what they are like? You learn their history, you ask people about them, you try and decipher what they have done in the past, in the hopes of understanding them better. Why do you do this? The implicit assumption is that they will do the same things they have done in the past in the future. Markets are no different. When the market is on a runaway uptrend, traders look to the older charts to see where the critical zones are on the chart. This is also where we see history repeat itself, over and over and over again.This shortcut for finding zones on the chart will work regardless of the timeframe you are trading. Simply move up one timeframe.

This is a very powerful method for finding the most important zones on the chart.Examining the higher timeframe chart will enable you to identify zones that will be the most critical areas on the chart for the timeframe you choose to trade. A few touches on the higher timeframe chart will translate into many touches on the lower timeframe chart. This technique will work on any timeframe chart.

FIGURE 4.7 The 1.6291 level on the GBP/USD one-hour chart appears to be an extreme low, so a zone is assumed at this level.
[You must be registered and logged in to see this image.]
Take a look at Figure 4.7, the GBP/USD one-hour chart. This pair has made an extreme low at the 1.6291 level. This touch at 1.6291 suggests the market has made a significant low, and this level may become important later. You may recall that extreme touches (lows or highs) are also critical zones. Although most zones will have touches from above and below (support and resistance touches), touches at extreme levels are also very critical, such as the extreme low in Figure 4.7. Later, the market will often come back to these extreme levels.

FIGURE 4.8 The market comes back to the 1.6291 zone one month later on the GBP/USD four-hour chart. Notice the repeated touches from above and below.
[You must be registered and logged in to see this image.]
A month later, the GBP/USD four-hour chart (Figure 4.8) suggests two very interesting conclusions. First, the market has indeed found support and resistance on the 1.6291 level; the market has a memory. Second, the four-hour chart shows a very clear perspective for this market.Moving up to a higher timeframe is an excellent way to gain perspective.Only the most important zones will become evident on a highertimeframe chart. If you are using Meta Trader for your charts, you will have the following time frames available: one minute, five minutes, 15 minutes, 30 minutes, one hour, four hours, daily, weekly, and monthly. Thus, if you are trading the one-hour chart, a move up to the four-hour chart will help to identify the critical zones.

The GBP/USD zone at 1.6291 is clearly a critical zone, as the market touches this zone more than six times over the course of one month (Figure 4.8).This brings up an important point about zones. The importance of a zone is directly related to the number of touches on that zone. So, for instance, if a daily chart shows a zone with five touches over the past year, this would indicate a very critical zone on that particular chart.

Here is another example:

FIGURE 4.9 A Critical Zone at 1.4350 on the EUR/CAD Daily Chart.
[You must be registered and logged in to see this image.]
Notice on Figure 4.9, the EUR/CAD daily chart, that the 1.4350 zone has served as resistance three times over two months.

Moving back a bit further, we see in Figure 4.10 that the 1.4350 area was an area of resistance seven months prior to the recent touches on the zone.
FIGURE 4.10 Seven months prior, the EUR/CAD finds resistance at the 1.4350 zone.
[You must be registered and logged in to see this image.]

If we go back even further, we can see in Figure 4.11 how there are many touches on this very same zone, the 1.4350 zone, as price has found both support and resistance on this zone.

FIGURE 4.11 Nearly five years prior, the EUR/CAD repeatedly finds resistance and support at the 1.4350 zone.

[You must be registered and logged in to see this image.]
These touches occurred on this very same critical area, the 1.4350 area, almost five years prior.Some traders will say that old zones no longer matter. Traders say things like “things have changed,” or “with inflation these old levels do not mean as much anymore,” or “why would the market remember a level that it has not been to in over a decade?”

If this is currently your way of thinking, I would encourage you to take a close look at the zones on a chart 15 years ago. Just scroll back on the chart, do not consider the current price. Draw your lines on the chart based on where you find support and resistance zones 15 years ago. If your chart doesn’t go back 15 years, try to go back at least 5 to 10 years. You should be able to identify critical areas on the chart from a long time ago. Now scroll forward and you will see that price in the future bounces off of these support and resistance zones. The chart has a memory. As amazing as this may sound, it is true: Price has a memory. This is true for any market, on any timeframe. I hope you go out and see this for yourself. Please do—your
future as a naked trader may depend on it. The markets do remember the critical zones, this is why it is important for you, too, to remember these critical zones.

Marking the zones on your chart is as simple as drawing a line on the chart.However, if you have not looked at charts in terms of support and resistance zones before, it may be a bit difficult to find precisely where these zones are located. It is important that, as a naked trader, you “see” these zones. One brilliant method for finding zones on the chart, and this works particularly well for those traders who are new to finding zones on the chart, is to move to a line chart. Most charting packages will allow you to view the market on a line chart. A line chart is a chart that offers a continuous line, connecting the closing prices. Rather than showing the open, the high, the low, and the close, such as a candlestick chart, or a bar chart, the line chart simply connects the closing prices.

Take a look at the daily GBP/CHF chart (Figure 4.12). Where would you draw the zone?

FIGURE 4.12 Sometimes zones are not very obvious, such as on this daily GBP/CHF chart.
[You must be registered and logged in to see this image.]

Now, take a look at the line chart in Figure 4.13. Where would you draw the zones on this chart?

FIGURE 4.13 A line chart will often make zones easier to spot.
[You must be registered and logged in to see this image.]

It is very obvious in Figure 4.13 that a zone should be drawn at 2.2713,and this is the beauty of the line chart. The line chart allows you to find those areas on the chart where price has “bent”—the line chart helps us to identify zones because the line chart shows where price has repeatedly bent, each bend on the line chart is a potential zone. Those places on the line chart with several bends are zones.Line charts may also be extremely useful for those charts where price doesn’t seem to be respecting a zone.

Take a look at the NZD/USD four-hour chart in Figure 4.14.

FIGURE 4.14 Sometimes zones are not very obvious. Price seems very choppy on this NZD/USD four-hour chart.
[You must be registered and logged in to see this image.]
See how market prices are all over the shop and price does not seem to respect any zone? Perhaps there is a support and resistance zone hidden on the chart. Maybe it is there, but it is not immediately obvious where this zone is located.When a chart looks like this, it may be difficult to spot the zone.Perhaps there is no zone on this chart? For these charts, the line chart may come to the rescue. A line chart may save you from sloppy price action on the charts. A line chart may make clear what is otherwise muddled and difficult to decipher. Line charts are absolutely critical for the naked trader.

Notice how the price movement on the chart in Figure 4.15 becomes clear and the zone is now obvious. Because the line chart takes into consideration only the closing price, it is a very simple way to view price action.

FIGURE 4.15 The line chart for the NZD/USD four-hour chart suggests a clear zone at 0.6937. Notice that there are several bends in the line chart at this zone.
[You must be registered and logged in to see this image.]

Now, you may wonder, “Why look at a chart that only takes into consideration the closing price?” The line chart is made up of only closing prices.This is true, but the closing prices are the most important price. It is important to note that the closing price for the forex market is usually considered the end of the North American trading session, at 5:00 P.M. NewYork time. Every day, there is a battle between the bulls (buyers) and bears (sellers).

Traders run through the full gamut of emotions and often swing from fear to greed and back again during the trading session. However, once the end of the day approaches, traders begin to concentrate on answering this one important question: “Should I hold this trade through to tomorrow or should I close this trade now?” This is precisely why the closing price is critical, and not only in North America.

The traders in Europe also see the closing price, and may react to it.This is an important point because the closing time may be only 10:00 or 11:00 in the evening in Europe, depending on the country. Traders in the
Americas and Europe spend a good portion of the day trading during the same time. This is a significant aspect of forex, because European and North American markets capture the overwhelming majority of the volume in forex.

Therefore, this closing price, the last price for the New York session, is extremely important. Both traders in the Americas and the European Continent influence it. After this closing price, the market slows down considerably and shifts into the interbank market, a very slow trading period punctuated by occasional bank-to-bank transactions. In a very real sense, the North American closing price is the last price of the day before Asia wakes up and starts a new trading day.

Youmay wonder at times if a zone is important enough to draw a line on the chart. Sometimes it may not be very clear, perhaps there are a few touches on an area, but it may not be a strong area of support and resistance. If this is the case, you are probably seeing what is called a minor zone. A minor zone is nothing more than a support and resistance zone on the next-lowertimeframe chart. These zones are very apparent on the lower timeframe chart, and with practice you will spot them on the higher timeframe chart, but they are not critical areas. Marking minor zones on your chart will only make the chart confusing.


Later we will look at the importance of minor zones, but for now it is important to note that, although they may be apparent, they are not critical and they should not be marked on your chart. The only zones that are
marked on your chart are those zones on the timeframe you are trading, and the timeframe one step higher from the chart you are trading. Any of the other zones are not important for defining your trade set ups.

In Figure 4.16, you can see an obvious zone at the 113.85 level on the EUR/JPY four-hour chart.
FIGURE 4.16 The four-hour EUR/JPY chart has an obvious zone at the 113.85 level.
[You must be registered and logged in to see this image.]
However, the minor zones may not be so obvious. There is also a minor zone on the EUR/JPY four-hour chart in Figure 4.17.

FIGURE 4.17 A minor zone on the four-hour EUR/JPY chart is marked by the arrow at 114.90. Minor zones can often be identified by candlestick highs or lows.
[You must be registered and logged in to see this image.]
This minor zone may be identified by the candlestick lows and the candlestick highs.It may take some practice to see these minor zones on the chart you are trading.However, it is quite easy to see this minor zone on the EUR/JPY chart by examining a lower timeframe.

Moving from the four-hour chart to the one-hour chart is one way to clearly identify thisminor zone. In Figure 4.18, the minor zone on the EUR/JPY one-hour chart is clearly identified at 114.90, themarket finds support at 114.90 for several one-hour candlesticks before falling through the level, and then later, the market trades back up to 114.90 and finds resistance.

FIGURE 4.18 The minor zone at 114.90 is clear to see on the one-hour EUR/JPY chart.
[You must be registered and logged in to see this image.]
This minor zone, which was difficult to see on the four-hour chart, is now easier to see because the touches
from above and below are more clearly defined. Minor zones are critical for managing trades. Minor zones are hurdles, spots where price may get stuck for some time. When trading the higher timeframe chart, the only important zones are those major support and resistance zones, the standard zones.If you find that you have too many zones drawn on your chart, then you may be identifying minor zones on your chart.

Too many zones on your chart will mean that you will find it difficult to identify trade set-ups and profit targets for your trades. Zones may appear at any place on the chart.Some naked traders will attempt to only draw zones on the chart at round numbers, such as 1.3500 on the EUR/USD. This is not necessary. Zones may appear anywhere. If a zone is identified at 1.1097, it may be acceptable to mark it as 1.1100, but it is not necessary for all zones to fall on a round number.

Most of the time your zones will be scattered throughout your chart. Therefore, it is important to note that you may have two significant zones nearby, but in general your zones should be spread out throughout the
chart (see Figure 4.19).

FIGURE 4.19 The daily EUR/AUD chart has zones that are approximately 100–200 pips apart.
[You must be registered and logged in to see this image.]
Here are a few examples. In this chart, there are several hundred pips between zones. On a daily chart, this is common. Usually zones are separated by about 100 pips or more on a daily chart.

The higher the time frame, the more separation between zones. Here is the EUR/USD weekly chart in Figure 4.20, and the zones are several hundred pips apart. On average, there are about 500 pips between zones.

FIGURE 4.20 The weekly EUR/USD chart has zones that are about 500 pips apart.
[You must be registered and logged in to see this image.]

Zones are critical for the naked trader. It is important for you to become comfortable identifying and working with zones. Zones are where the action is for the naked trader. At first you may have difficulty with zones; listed are five common trouble spots and solutions for each.

First, you may not know where to find your zones (see Figure 4.21). If you are having difficulty identifying the zones on your chart, the easiest solution is to simply load a line chart.

FIGURE 4.21 This is the daily USD/CHF chart. Do you see a zone on this chart?
[You must be registered and logged in to see this image.]

The line chart will show all the zones, because the zones will be identified by the bends in the line (see Figure 4.22.)
FIGURE 4.22 This is the USD/CHF daily line chart. The obvious zone at 1.2685 is now apparent.The market repeatedly finds both support and resistance on the zone.
[You must be registered and logged in to see this image.]
At each spot where you see repeat bends in the line, you are probably looking at a zone.

Second, you may have too many zones drawn on your chart (see Figure 4.23).
FIGURE 4.23 Too many zones are identified on this daily USD/CAD chart. The market touches a zone nearly every day on this chart because several minor zones are marked on this chart.
[You must be registered and logged in to see this image.]

If you have too many zones drawn your chart, then you will probably experience two likely problems. The first problem is that you will notice many trade opportunities. If you are trading the daily chart and notice that you have a trade nearly every day, you probably have too many zones drawn on your chart. The zones should be more or less evenly spread out, and it may take some time for the market to reach these zones,and trigger a trade. Patience is important for the naked trader. Zones are critical areas on the chart, and price does not always reach these critical areas—zones—every day. The second problem that you will likely have is that you will notice many trades end up being losers.

This is because the zones on your chart are not solid zones; perhaps there are minor zones identified on your chart. It is important for you to draw critical zones only,those spots in the chart where price has repeatedly reversed. By only identifying those zones on the chart where price has repeatedly reversed, the odds are in your favor. It is nearly always better to err on the side of caution.

To do this, simply draw fewer zones (see Figure 4.24).
FIGURE 4.24 This is the USD/CAD daily chart again, with only the major zones identified. Notice how the market does not touch a zone every day.
[You must be registered and logged in to see this image.]
If you mark only those zones on your chart where price has repeatedly reversed, you will avoid identifying the minor zones. You may miss out on some trades,but the trades you do make should be great opportunities.The third common problem you may incur when dealing with zones is this: It often becomes very difficult to determine precisely where a zone should be drawn. This is the nature of the zone.

The zone is squishy, it is fat,it identifies an area on the chart, and not a specific point (see Figure 4.25).
FIGURE 4.25 The daily CHF/JPY chart has a clear zone at 89.35; the market has found resistance at or near this zone on several occasions. Notice how some of the valid zone touches are a deep into the zone and others are near the zone.
[You must be registered and logged in to see this image.]

Remember that you do have some leeway in drawing your zone. It is not essential to nail down the zone to a specific price point on your chart, but rather it is important that you identify the area on the chart where you will look for a reversal. The touches on the zone will not be perfect. Some touches will come close to the zone, other touches will extend deep into the zone.Notice how the 89.35 zone in Figure 4.25 has provided resistance for the daily CHF/JPY trade on several occasions. The market has fallen after reaching this zone each time, but the first two touches extended deep into the zone, and the third touch came near the zone. This is very common with zones; sometimes the market will brush against the beer belly and at other times the market will push into the beer belly.

The fourth problem that many traders come up against when drawing zones is that the market seems to disregard zones. When this occurs, our trusty friend the line chart can often come to the rescue. The easiest way to illustrate this issue is to take a look at an example.

Take a look at this chart in Figure 4.26, and you will notice that it appears as though the market is not respecting the area at 81.83, where a zone could be drawn on the chart.
FIGURE 4.26 The one-hour AUD/JPY chart has several clean reversals around the 81.83 zone; however, there are several sloppy touches marked with arrows. The market does not appear to respect the zone during these touches.
[You must be registered and logged in to see this image.]

FIGURE 4.27 The line chart clears up the confusing price action around the 81.83 area on the AUD/JPY one-hour chart. The line chart indicates that the market found resistance twice and support once on the 81.83 zone, so it is a well-placed zone.
[You must be registered and logged in to see this image.]

However, the same chart viewed as a line chart (see Figure 4.27) shows the important touches as bends in the line chart, and it is obvious that the market has respected this zone.The fifth problem that you may come up against when trading with zones is this: If the market trades beyond the zone it does not mean that the market has broken the zone. This is an important and critical point for the naked trader.

Remember zones are beer bellies, they are squishy, they are fat, and they consist of a wide range on the chart. This means that sometimes the market will push into the zone, and it may look like the market has broken beyond the zone, this is often not the case.

FIGURE 4.28 The NZD/CHF daily chart shows at least five touches on the 0.7590 zone; some touches go beyond the zone, others are just below the zone.
[You must be registered and logged in to see this image.]

Take a look at the daily NZD/CHF chart in Figure 4.28, the market finds resistance at the 0.7590 zone at least five times between November 2009 and March 2010.The NZD/CHF chart from November 2009 to March 2010 shows a clearly defined zone at 0.7590, the market finds resistance at this level on at least five occasions.

From left to right, there are at least five touches on the 0.7590 zone. The first touch is a near miss; the price came very close to 0.7590, but ultimately found resistance just below this price. The remaining touches are a bit beyond the zone, but each are valid touches on the zone. The second touch includes three daily candlesticks in succession; each day the market pushes a bit beyond the 0.7590 zone. Ultimately, the market closes below the zone, and after the third daily candlestick falls, the market trades lower once again.

The third touch occurs five days later and includes a piercing kangaroo tail candlestick (see chapter 8 for more on the kangaroo tail), clearly the market has traded beyond the 0.7590 zone, but the market is unable to close above the zone, and it falls down after this touch. The fourth touch is made up of two candlesticks, the first on the 0.7590 zone and the second pushes a bit further beyond the zone, but it is still a valid touch. (There is another near miss after this touch, not marked on Figure 4.28, but the market does come very close to the 0.7590 zone.) The fifth and final touch again penetrates the zone before falling sharply; notice how the market was once again unable to close on the other side of the zone. At times, the market may touch a zone and then close briefly beyond the zone before moving back, but most of the time if the market touches a zone, it may trade beyond the zone, but it will not close beyond the zone.

Have a look at some charts. You will notice how price will often push into and beyond a zone, only to eventually turn around. This is a common behavior. It is also the reason why most naked traders find it much easier to trade reversal set-ups than breakouts. Reversal set-ups are based on the market turning around at a zone, and breakouts are based on the market trading beyond a zone.
Perhaps you are similar to most traders in that you find it a very tricky proposition to determine when the market has made a breakout and traded beyond a zone. If this describes your experience, you may consider avoiding breakout trades and focusing on reversal trades.

The easiest and safest way to trade breakouts is : The Last-Kiss. If you are interested in breakout trading, the last kiss may be the trade for you.Once you begin to closely attend to the clues in the market, your trading will become more consistent. Once the market reaches a zone, the naked trader watches carefully, and if a catalyst appears, a trade is triggered. The key to successful trading is to wait for the very best trading opportunities.

These opportunities occur when the market reaches a well-defined zone and then prints a catalyst. These are golden opportunities.The next section is all about trading catalysts, how to identify them and specific rules for trading each of the high probability, naked-trading set-ups.