It is worth considering that if you mark support and resistance levels on line charts, they will only be using the closing price, without the highs and lows that the candlestick chart shows. It is also important to be aware of the chart time frame that you are marking the levels on. Whilst this will usually depend on your trading strategy scalping , day trading or swing trading , what looks like support or resistance on a particular time frame may not be on another.

I like to check my levels on multiple time frames as it helps me to decide how significant the level is. Some traders will even plot support and resistance across multiple time frames so that they are aware of each level whatever time frame they are watching.

I tend to find support and resistance on longer term time frames more reliable and easier to spot. There is a plethora of different ways to trade support and resistance levels as they are whilst you can also incorporate them as part of an overall forex trading strategy. The first step is to market the support and resistance levels then decide how you will use them.

I personally would always look to confirm the levels with additional analysis such as candlestick patterns, technical indicators, sentiment analysis and fundamental analysis. Candlestick patterns can show price action around the levels whilst a technical indicator such as an oscillator can show potentially overbought or oversold areas around the levels.

Of course, there are no guarantees on how any forex trading strategy will perform and what will happen in the markets. Thus, it is imperative to ensure that you have a solid forex trading plan and are using a sensible risk that you feel comfortable with good money management in place. Trend trading is a forex trading strategy that attempts to take advantage by analyzing forex movement in a specific direction. Forex traders who trade with this strategy would look to enter a buy long position when they see a currency pair is trending up and they would look to sell short when they see that a currency pair is trending down.

Trend traders would usually be using an indicator such as the moving average to try and identify trends.

Trend trading with support and resistance levels can help to identify the direction that a currency pair is moving and also potential entry points into the trend. One idea is to enter an obvious uptrend once price has bounced of support as this may be seen as a continuation of the trend. On the other hand, if price bounces off resistance in a down trend, this could be an indication that the market will continue heading south.

A countertrend trading strategy is when the trader will try to enter against the trend in anticipation that the market is turning around. When price turns around, it can mean the trend is coming to an end or that there is a reversal before a trend continuation. Countertrend forex traders often depend on technical indicators and oscillators like the relative strength index while making their trade decisions. Knowing where the support and resistance levels are can be beneficial when trying to filter for countertrend trades as price will often bounce from these levels.

Range trading is a forex trading strategy where traders will look for a range bound market where price is bouncing between support and resistance within a price channel that they have marked on the chart with horizontal lines. They will then look to trade between the range until it is breached, buying near the price channels support and selling near the resistance. Many professional traders use support and resistance levels as a key part of their trading strategy.

The more a level is tested and not breached, the more prevalent it tends to be. I believe it is imperative to be aware of support and resistance levels and have them marked on your charts. Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more.

I share my knowledge with you for free to help you learn more about the crazy world of forex trading! Read more about me. Skip to content Forex Brokers Forex Courses Forex Robots Forex Signals Forex Systems Forex Tools Forex Trading. Forex Brokers Forex Courses Forex Robots Forex Signals Forex Systems Forex Tools Forex Trading. Search for:. Home Forex Trading Forex Trading With Support And Resistance Levels. Because price always repeats history. Traders always want to buy from the support zone because the price will bounce, or a bullish trend reversal will happen.

A zone will act as a valid support zone if the price bounces at least two times from this zone and makes a higher high. It is advised to place buy orders on the third touch of the support zone because it is psychological.

It would help if you bought on the third touch of support zone for high probability trend reversal and place stop loss below the zone. Resistance zone means the zone where more numbers of sellers are willing to sell a specific currency or stock. It is a bearish trend reversal zone in technical analysis. For a valid resistance zone, the price should bounce at least two times from the zone with a lower low formation. You should place a sell order when the price bounces the resistance zone for the third time and place stop loss above the resistance zone.

The probability of trend reversal from support or resistance zone can be increased by adding other technical tools like candlestick patterns because a strategy comprises several factors like risk management, risk-reward etc. So here, I have added a confluence of a candlestick pattern like a pin bar or engulfing candlestick with support and resistance. After finding a valid support zone, wait for the bullish pin bar or bullish engulfing candlestick at the support zone. Then place a buy order with stop loss below the zone or below the candlestick pattern.

Take profit levels can be measured by using the Fibonacci tool. After detecting a valid resistance zone, wait for a bearish pin bar or bearish engulfing pattern at the resistance zone. Then place a sell order with stop loss above the zone or above the candlestick.

The last lower low on the chart can also be used to take profit level. You can also use the Fibonacci tool. The conclusion is that support and resistance are the primary tools, and you should use these tools in your trading strategies to increase the winning ratio. The traders also use support and resistance to forecast currency pairs on the higher timeframe and then trade the trend on lower timeframes.

It will draw real-time zones that show you where the price is likely to test in the future. Your email address will not be published.

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One of the most crucial skills in Forex Trading is the process of finding support and resistance levels. This is so because knowing the basics of support and resistance would improve upon any trading method.

Therefore, recognizing key levels is crucial to the success of any trader. In this article I will teach you how to identify these key levels and how to benefit from them. But first…. Support and resistance are specific levels or zones on the trading chart, where the price of a Forex pair or equity, commodity, etc. is likely to find opposition. The reason for this is that these are psychological levels showing the different attitudes of the market players.

When price meets such levels it could lead to a bounce in the opposite direction of the trend or to consolidations horizontal movement of the price.

Also, the level could be broken and the price could make a rapid move. Support and resistance areas are the zones where the interests of the market players intersect. The weaker ones lose and end up in the mud puddle. In our case these are the bulls and the bears fighting for dominance in the market.

Some of them believe that the Forex pair will go up and some of them believe that it will go down. Therefore, we have a clash between buyers and sellers. The ones who prevail will push the Forex pair in their respective direction. Support and Resistance is essential to any price action trading strategy. The answer to this question is very simple. Supports are the levels which are beneath the current price, while resistances are the levels above. Furthermore, when price goes down through a support level and breaks it, this level becomes a new resistance and vice versa.

In other words, when breaking the level in a bearish direction, price relocates under that level and the old support levels now becomes a new area of resistance. Have a look at the image below:. The chart covers the time frame Sep. The green circles show the places where the price gets supported by the purple 1. This example shows how a support could turn into a resistance and how it could start acting as a level with opposite force. For the most part, support and resistance levels are very easy to find on the Forex charts.

Every bottom on the chart is a potential support and every top is a potential resistance. Notice that I call these potential and not actual. A potential support turns into an actual support, when the price conforms to its level more than once. If we see the price dropping to a level and then going back up, we consider this area as an eventual point, where next time the market gets to that level, it might find opposition.

If we see the price bouncing again from this level, then we confirm the level as a support. Then we assume that the price is likely to bounce off this support again in case of another drop.

The same applies for resistance levels. Not all support and resistance zones are created equal. We are only interested in trading valid supports and resistances as measured by their authenticity and potential. There are weak supports and reliable supports. There are weak resistances and reliable resistances. As you probably guess, traders tend to stick with the more reliable levels, as they are more likely to point to a successful entry and exit point.

The more reliable support and resistance levels are the ones, which are older and have generally been tested more times. The picture below compares two levels — a stronger resistance versus a weaker support:. The image shows the move of the price between Nov. The purple line is a 7-times tested resistance of the price, while the yellow line is a 4-times tested support. The circles point the exact place where the levels were tested.

Since the purple level is older and has been tested multiple times, it is the stronger level. The orange rectangle shows the area where the two levels are consolidating, and bouncing back and forth in an attempt to breakout of the range.

We can expect one of the two levels to be broken. Since the purple resistance is older and has sustained the price longer than the yellow support, I would prefer to take a market position in bearish direction, because I assume that the yellow support will bend under the pressure of the purple resistance.

Actually, this is exactly what happens in the end of the orange rectangle. The price gets through the yellow support, which from now on should be called resistance as prices fall below the prior support level.

As we have discussed, support and resistance levels are used to place entry and exit points on the chart. These are the essentials of any Forex trading strategy, which every trader should know how to use!

The reason for this is simple — no matter the strategy you use and the tools you apply, the price of every Forex pair constantly approaches different support and resistance lines, and so we must keep a watchful eye on price action surrounding these levels. Imagine the price of a Forex pair approaches an established support zone.

Since the support is old and many times tested, I assume that this support level is reliable. For this reason I could try to enter the market and set an entry point after the price touches this support level. The right way to do this is to wait for the price to interact with the level first. When this happens, I enter the market with a long position only if the price bounces in bullish direction from this level.

If you go long on your support level, the most logical place to put your stop loss would be below the support area. You place your stop right beneath your support. Doing so will limit your loss in case the bounce is a fake and the support gets broken in bearish direction after all. Take a look at the example below:. The purple line is an old support level, which I consider reliable and good for setting entry points.

The image stages four cases to enter the market on this support level. The blue arrows show the ascending move we get after the price interacts with the purple support. Notice case 3 where after a short increase, the price does a rapid drop and hits our stop loss order. This is why it is paramount to always use a stop loss when trading. So, this support level gave us three good long positions and one bad, which equals to success rate.

Note that setting entry points on resistance levels works the absolute same way as setting entry points on support levels, but in the opposite direction. In order to set an exit point on a support or resistance level, you should already be in the market with a position. For this reason, imagine you have bought a Forex pair and the price moves in bullish direction according to your view.

I should secure myself! The image below will make this clear for you. I am in a long position after the red bullish trend line. The thicker parts of the trend show where the price finds support. While I am in my long position, I see the price getting close to an old resistance, which has already been tested few times and has sustained the price of the Yen. Therefore, it is a good approach to secure my position with an exit point below this resistance in order to avoid loss of already gained profit.

Whenever the price touches the resistance, a stop loss could be placed below the candle, which has touched the level.

On the image above this is the small orange line. If the price breaks the resistance in bullish direction, then I can reopen my position. But if the price does a rapid drop, I am protected with a stop loss order like in the example above. The stop loss covered us for the rapid decrease, which even got the price out of the red bullish trend. But what if the price bounces from the resistance but then bounces up again from the red trend? In this case, if I see the price bouncing up, I go long and play again the resistance game with the stop loss.

Note that in my example, the quick drop brought a bearish candle far below the trend, which infers the end of the bulls.

Therefore, the exit point beneath the purple resistance saved me from an unwanted loss of profit. This same scenario could be played with an exit point on a support level, but in the opposite direction. For some newer traders, trading support and resistance using an additional Forex tool on your chart for confirmation can sometimes prove helpful. The reason for this is that support and resistance trading can give us false signals from time to time.

For this reason some price action forex traders tend to confirm the signals they get with additional trading tools like candle patterns, chart patterns , oscillators, momentums, etc. One of the most common ways to trade key levels is simply by trying to go with the market flow after the price has shown its bias toward a support or a resistance level.

Buy when the price approaches a support and starts bouncing in bullish direction and sell when the price touches a resistance and starts bouncing in bearish direction. Also, buy when the price breaks resistance and sell when the price breaks support. For example, the price touches a resistance and bounces in bearish direction.

The first candle, which closes lower than the prior candles could be used as a trigger of a short position. At the same time, I stay in the market until the price reaches the next important support zone and closes a candle above the previous one. If this happens I close my short position. At the same time, this gives me a signal to open the opposite position. For this reason, I could go long and do the same but in the opposite direction.

I am providing a basic illustration for our purposes here, but in reality, it is not quite as clean cut as we would like at times.

Leave a Reply Your email address will not be published. So basically the support and resistance areas are kind of a battleground between the bulls and the bears or in other words they represent a delicate balance between the demand and supply. Please make sure that you fully understand the risks involved, taking into consideration your investment objectives and level of experience, before trading, and if necessary, seek independent advice. You place your stop right beneath your support. And we all know that it is not easy to stay disciplined. For example, a fast, steep advance or uptrend will be met with more competition and enthusiasm and may be halted by a more significant resistance level than a slow, steady advance.

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