There’s an old saying about those who forget history. I don’t remember it, but it’s good.—Stephen ColbertYou 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 mar- ket 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 maybe extreme highs or lows onthe 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 characteris- tics. 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.
ZONES ARE BIG FAT BEER BELLIES
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 trad- ing. 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 some- thing 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 zonesare the foundation of naked trading. - Naked Forex