The best way to trade these "falling knife approaching long time support" trades is to stand aside until it hits the old low and observe what happens.
Think of that old low where your line is like a test. The market will almost certainly test it, as it is the obvious place for longs to start accumulating positions and longs to have their stops.
The odds are high that you get a quick move below that level, and then you will see one of two things. Either buying pressure of big players will be strong, or shorts will start piling in on a breach of technical support (like what happened with Gold last week).
No matter what anyone tells you there is absolutely NO WAY to tell in advance which of these two situations is gonna play out. You don't need to know, however.
If the candle that makes the new low shows signs of buying pressure, ie an up close, a long lower wick, a close above the old low, etc - you can see there is TENTATIVE evidence of a bottom forming. Place a buy stop order 1 tick above the high of the bar that made the low (monthly bar) and if your order is filled place a stop 1 tick below the low.
By waiting to see price break the high of the setup bar you are increasing the odds of a successful trade by waiting until price actually does what you want it to, instead of guessing what it will do.
Guessing price is a chump's game, even the best of us don't get it right all the time. Observing price action and deducing what the most likely next thing is what you should be doing :) 11/6/14
Life is what you make it......
