In our First Hour Box from Part 1, the price action (candlestick) closed outside of our box, creating a Higher High, giving us confidence in our direction to trade LONG. Conversely, if the price action would have dropped below the box, we would have looked to go Short.
Now that the Price Action has broken OUTSIDE the box (to the UP side), we are going to copy and paste our First Hour Box (FHB) directly on TOP.
At this point, we can “cut the box in half” giving us a reference point for future potential targets. In this example, we have a 10-point box, so cutting it in half will represent 5 points. (We’ll “cut in half” whatever the FHB point size is. So, half of 18 points would be 9.) So we’ll draw a horizontal line at that halfway point.
You may want to make the second box a different color, just so it’s easy to identify. Whichever side of the box it breaks out of, 60% of the time it will stay on “that side” of the box and continue to at least 50% of the size of the original box as your profit target. In this example a target of 5 points above the top of the box is reasonable because it represents half of a 10-point box.
We can use the 50% Line as a Target for an EXIT if we are already in a trade, or a possible TURNAROUND if we’re looking to get IN a trade.
As you can see, this 50% Line represented and area of RESISTANCE; a great place to look for an Exit if you are IN a trade. While no trading technique is the “end all” to your decision making, certain tools add confluence to your decision making. We encourage you to give the First-Hour Box a try to see if helps you make better decisions. Stay tuned for part 3!
Trade Well at FNL!
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