Support and resistance is THE most important feature of ALL for trading methods. Support simply refers to areas where price failed to break below because it was being supported in a specific area. Resistance refers to upper areas where price struggles or fails to break above.
Often this can be a whole number as well, so for example on Gbp/$ forex pair, 1.500 is a major area of support AND resistance. There are different types of support and resistance and some indicators like moving averages are an example of flowing support.
Support & Resistance -How does it help the forex trader?
Traders all over the world are looking at areas where price is likely to stop or at least struggle. Support and resistance lines therefore can give excellent clues as to where to buy, sell, take profit and place stop losses. All of which will be covered in greater detail later in the course. If you look at the diagram above you will also notice how candlesticks (which we covered in the previous video) combined with support and resistance lines give huge “clues” as to where price is likely to go next.
Support & Resistance Is KEY To Your Success
If is imperative that you learn to master support and resistance. It is not difficult. All you are trying to do is place lines on your charts where other traders around the world are likely to be doing so on their charts, then you are well on the way to becoming a successful forex trader. These lines are simply where the majority of traders expect or predict that price will change direction.
This is an easy Forex technique that is the basis for ALL forex trades. Some important facts to consider before using support and resistance to trade Forex are:
• When the support level is broken it becomes a resistance level, the opposite is also correct.
• Breaking the support and resistance levels is not an exact equation. You MUST wait for a candle to close to avoid false breakouts.
• Real breakouts are usually marked with a candle that has closed below/above the support or resistance level.
• Check charts on the different (larger) time frames. The higher the time frame the more important the support and resistance levels are.
• If price bounces off the support or resistance line, that level becomes stronger.
The stronger the support and resistance level is, the more profit can be gained when it’s broken.
Also you can often use these areas as targets for trades, ie where to take your profits.
So now you know what Support and resistance levels are, in the video I am going to briefly cover how to trade them. Trading support and resistance levels can be divided into two methods: the bounce and the break.