Support & Resistence And How To Profit From Them
SUPPORT in Technical Analysis is the price level through which a currency pair seldom falls. This is the level from which the price jumps back. Ultimately, it may be a technical point, which is called double or triple bottom. But if we want to analyze the psychology of the formation and behavior of traders and bankers we will find that this is a psychological price barrier when the price drops to a level where no one wants to sell at such a low price and currency pair refuses to fall further. The more the price touches support level, the stronger the support/barrier will be. And of course, if the market breaks through a very strong support, it means that in most cases a further significant fall in the price of the currency pair is expected. Yet it is important to say that this is not the exact line, but the price level / area. RESISTANCE: The same rule applies in reverse resistance. We are looking for price levels where traders refuse to continue paying higher price for the currency pair and the market refuses to grow. At this price level the uptrend is stop and market starts to fall. If the market is very strong and breaks the resistance barrier, the price usually tend to grow (if it was not a false breakout). Support and resistance (S / R level) play an important role in the formation of socalled Pricing channels. They are formed when the market moves sideways within a support and resistance price level. If the market breaks through such a channel, we can expect significant movement in that direction. And often support becomes resistance and resistance changes to support. Strategy
Now that we know how to trade these areas, we will show you a few simple example with an indicator. The indicator shows us actually the place where the strong rejection of the market are and thus forms resistance or support.
Rules of the Strategy
We trade only with the trend.
Always try to trade with the trend, ignore unclear or weak trends.
1H Timeframe or Higher.
Bigger time frame always gives you a better chance because more people will notice the same area. More people equals more activity at our level.
Maximum 2 trade per area!
Don‘t trade more than 2x in an area. The more the area is tested, higher the probability of it to be broken.
We do not trade against the round number.
Areas such as 1.10 or 1000 etc. are major psychological barriers, it is better to avoid them. You never know what the price will do at this level.
Do the money management
Money management is a very important thing. Personally, I recommend trading for at least double the risk. Thus I am risking 30 pips and I want to get at least 60 pip profit. Of course, check for cashback program. Personally, I use www.forexcashbackrebate.com offers very high cashback rebates, support in English and next 5 language, and very fast payment. Personally, this program returns 5-10% of my deposit with a broker per month. It makes a very large number. Unfortunately, the majority of traders lose fees and underestimate the big money. You can even add an existing account, it's really very simple. I definitely recommend it.
During Exonomic News Announcement
Personally, I think it does not matter if you trade in this time. When support works price follows it. There is only so-called hazard known as „Slippage“.
Example trade to sell GBPUSD pair in 1H Timeframe.
Here is one picture of the chart. We see that the market began to fluctuate over time, and we start to draw level indicator to the chart. We deal with each trend. To determine the trend we will use trendline. When you define a trend, we can start trading.
2 options for trading:
a) Limit Order b) You can also wait if in an area market make some candle signal. Such as Pin, Engilf or Pattern. This is known as Area Confirmation.
It can not be said which method is better, but for beginners it is certainly better to use limit order. Acknowledgment of signal is very time consuming and often not traded, just because of the absence.
Getting Stopped out indeed sad, but is necessary thing when the market goes against us and our area did not work as planned. Stop-loss is placed over the color area. (Or below in case of support) Approximately 1.2 pips from level.
Example trade to buy USDCAD pair in 4H Timeframe.
In this graph we can see how value of USDCAD rises. Therefore, we look for buying signals on the blue zones - Support. We will only look for buying signals until the trend begins to break and bear market (sell market) comes in.
Stop Loss is placed under a blue area as in the case of sale.
Often the trader don’t know where the trend is going. In that case, use a daily or weekly chart.
Frequently Asked Questions
How do I manage my position?
Use risk reward ratio. At least 2 times greater reward than risk. Together with the cashback program.
When the market goes sideways, what should I do?
Look out instead for a different currency pair than just this. Surely you can find many, many occasions.
Market hit the stoploss several times, I'm doing something wrong?
Look, if you are really in a trend, and if so, do not despair, sometimes the market just goes against you. You can offset it in a good period. There is always a bad period for each trader. It is important to follow the money management and survive this period without major losses.
I use a different strategy, I can work this method along with my strategy?
Of course, the method will help you filter out the bad trades, there is nothing worse than to open and hold a trade and then lose it when it could have easily prevented.
Are those levels repainting as usual?
Probably yes. Support and resistance usually are subjective (repainting)
do we have these indicators on this forum
They are probably zigzag based SR indicators
Or fractals one of those two for sure