Interestingly enough – there isn‘t almost any information on the internet about the most fascinating habit of EUR/USD pair! Often it is so obvious that even a child could recognize these rhythms in price action. Well maybe not a child but a man with a few thousand hours of staring at intraday charts in his pocket should really notice that. How often did everyone of us sow trades in profit of around 40 pips dissolve right till the zero!? Or when price hits 20 pip stop loss and then turns right back at your direction/entry point? Well that is because EUR/USD moves in 20 pip (+- 2 or 3 pips) beats. Lets call them step-levels in order to separate these from other technical levels.
40 pips also plays important role in the pair‘s character. 40 pip distance often acts as exhaustion limit for the short term intraday movements. Very often pair takes a breather here or bounces back before continuation. Even after most notorious one-way movements with over 140 pips during the day it just bounces for a 40 pips and then moves further again..
You can always find one technical level or another at the peaks of intraday swings but the 20 and 40 pips intervals just keeps coming out.
Here are some examples of 20 pip step-levels:
Determination of the step-levels
Time frames. To determine these levels - use H1, M15 and m5 timeframes where m15 plays the most important role as m5 candles are often twisted by different data feed of different brokers so they aren’t very reliable and especially when tenths of the pip determines the color of the candle. And h1 is just a bit „slow“ because often 20 pip intervals are crossed inside H1 candle, and of course if there is several H1 candles with opening and closing prices inside the range – just trade the breakout of the range..
Use m15 as your primary time frame to draw step-levels. Draw first support and resistance lines in M15 first and then check for additional support/resistance levels in m5 and H1 time frames. Switch to M15 again and choose the most closely drawn lines as your step-levels .It is good indication if closing/opening price from H1 time frames coincides with ones on m15 time frame. Also closing/opening price from bigger time frames should be above support lines drown in smaller time frames and below resistance lines in smaller time frames.
Starting point. The most difficult thing is to determine first 20 pip level –the starting point just before the new session of the day or right after one started. Often first hour of Frankie open at 6:00 (GMT+1 summer time) creates first notable step-levels. If first m15 candles of London session respects both sides of the range then it creates good points to draw 20 pip extensions of that range and start trade with the first breakout of the Frankie range. It is important to remember to leave breathing room for all levels and don’t consider price movement of 2-4 pips above/below step-levels as a breakout. As for example – m15 candle close 5 pips above/below step-level with no wick is a good indicator of the breakout in the making..
If price action looks messy and you don’t know where to start your 20 pips levels, try the daily pivot first and look for coincidences with recent highs/lows or session opening levels.
The Middle. Often you can perceive 10 pips intervals but it just acts as the middle of 20 pip range. 50 % plays everywhere and step-levels is not an exception. Don’t confuse middle levels with the actual step-levels as they often makes price to change direction. This means that trader should consider closing his trade and taking profits at the middle in between step-levels.
Other technical levels. The whole point of step-levels is that they always coincide with other technical levels and the advantage is that its not necessary for trader to recognize other technical levels as price reacts to all of them anyway; but still keeps it‘s own rhythm of 20 pip steps! Of course it helps to know where daily/weekly pivot sits or daily moving averages goes – look at step-levels as part of the context.
Charts are always full of various “hidden” levels that may not be visible until after a pattern is formed. Note them and if pattern repeats 20 pips in any direction – adjust current levels if it is out by more than 4-5 pips.
Most important thing to understand is that it is not a trading system per se that I‘m writing about – it‘s more like a behavioral pattern. This means – don’t try to trade every touch or cross of the 20 or 40 pip level. What I‘m always looking for is weakness (rejection) or strength (breakout with momentum or/and breakout with the confirmation) in price action at these levels.
Here are some key rules about entries and exits:
- Points where 20/40 pip levels coincides with previous sessions highs/lows are very strong – these produce good opportunities to scalp first touch for a few pips.
- Don’t try to „ride“ the whole range between step-levels. Price often changes direction in the middle between the levels. That’s why my profit targets are less than 20 pips - often in between 7 and 15 pips.
- After traveling first 40 pips in the session or swing – price often bounces back to the middle of that range. It is wise to exit trades at this point.
- Stop loss must be relatively wide – above/below another step-level. Usually my stop-loss limits are around 25-30 pips.
- Before rushing to trade price movement between step-levels, trader must understand that these intervals may change during different sessions. Often these changes triggers opening level of that session. Lets say London respected 2582, 2562, 2542... levels and NY opened right in the middle of the intraday range at 2555 and starts to move between 2535, 2555, 2575...
- Always look for reversal candlestick patterns approximately 20 pips apart – you may notice that new step-levels are forming. The point is to let price action decide what levels it wants to respect and just fallow it. It is good to have two or more newly established levels before moving to trade them.
- H1 opening and closing level often reveals market intentions for the next hour or few so don’t forget to always check where the first hour of the session started and where last hour closed.
- Often price reacts to round numbers one way or another – so don't rush to mark them as your step-levels.
- Always wait for at least one candle to close of the respective time frame before taking entry or limit order.
- Sometimes same step-levels repeats for a few days or even weeks – so don’t get frustrated by searching new ones every morning.
Example of six almost perfect setups just in one session:
It is important to not expect perfect setups every day. My advice is – just let the price lead the way and show its levels . As one experienced trader said: “Screen time gives one a certain feel to the rhythm at which the markets are beating its drum and as long as you stick with the short term trend, you don’t need to complicate something simple.”