Support And Resistance
Support and Resistance in Forex trading are levels where price is expected to reverse or bounce. They are simply “price turning point” levels. The support and resistance levels are areas where price is rejected once or in multiple times. Identification of support and resistance forms part of the technical analysis.
Support is known as the floor where price touch and bounce off in response to market demand, while resistance is the ceiling where price touch and bounce off in response to market supply. Support or resistance line can be drawn on any time frame, whether on 1-minute chart or 1-month chart. However, some of the support or resistance lines remain valid for years.
To draw the support or resistance lines, you need to connect two or more contact points where price is rejected. The more the points of price contact to a level, the more the significance of that support or resistance level.
Support is a floor, while resistance is the ceiling. Let’s imagine a boy in a room throws a football to the ground with a great force.
In the diagram above, point A is the support while point C is the resistance.
Let’s imagine a man, bigger than the boy, throws another ball with a powerful force across a hall,
In the diagram above, points A, C, E, and F are the supports while point B and D are the resistance to the ball. When price moves and leaves a V shape behind, a support is formed, while when price moves and leaves an inverted V shape behind, a resistance is formed.
New Levels of Support And Resistance
When price break past a support level, that level becomes a new resistance, while when price breaks past a resistance level, the level becomes a new support level.
Technically, when price breaks out of a support level, it is advisable to wait for the price to test the level as resistance before it continues the downward movement. On the contrary, when price breaks a resistance level, it is advisable to wait for the price to test the level as support before it continues the upward movement.
However, there are instances where price hovers around the support or resistance level.
Identifying Strong Levels Of Support And Resistance
The level of support or resistance can be categorized as a strong support or resistance if price touches and bounce off that level in multiple times. At strong support or resistance levels, the area is well defended by bulls or bears and price most of the time do reverse from that area.
Weekly and Monthly charts are good time frames for the identification of strong support or resistance levels. Higher time frames offer a good view of the most relevant support or resistance levels for longer trades. Lower time frames show intermediate support or resistance levels for short-term trades.
Support And Resistance In Ranging Market
Support and resistance levels are easily identified in range bound markets as price bounces off the floor and ceiling in a straight line manner. Upper and lower boundaries are easily identified in this type of market. Buy signals are valid at the support boundaries while sell signals are valid at the resistance boundaries.
Support And Resistance In Trending Market
In a trending market, price moves in a staircase pattern. Higher highs or swing highs form the resistance level while higher lows or swing lows form the support in a bullish trend. On the other hand, lower lows or swing lows form the support level while lower highs or swing highs form the resistance in a bearish trend.
Descending and ascending trend lines are also used by traders to identify support and resistance levels.
Illustration: Let’s imagine a scenario, where a boy tries to throw a football from a tall story building to a man on the street at a bus terminal by the seaside as shown in the image below. The boy misses the target but the ball bounced on the bus below, hitting the ceiling of the terminal roof and dropping on the floor before bouncing away into the sea.
In the diagram above, points A and C are the supports while point B is the resistance to the ball.
Placing A Trade At The Support Or Resistance Level
Basically, a trader may place buy trades at the support line while sell trades are mostly placed at the resistance levels. However, certain price action formation is expected for confirmation before placing trades at the support or resistance level. Formation of pin bars, bullish or bearish engulfing bars, and other price action formation are critical for confirmation before placing trades at the support or resistance level.
Support and resistance lines can be used to spot price breakouts and price reversals. The lines can also be used as a trade target (take-profit) point.
How to trade the Support (Demand) and Resistance (Supply) Strategy
-Buy at the support (demand) area (placing 15 to 20 pips stop-loss below the area) – using 1-hour time frame or higher time frames.
-Sell at the Resistance (Supply) area (placing 15 to 20 pips stop-loss above the area) – using 1-hour time frame or higher time frames.
-When in a profit of above 10 to 15 pips, activate trailing stop or move stop-loss to entry price area
USDJPY: THE BEARS ARE ON THE RUN! 112.13 IS NOW BEHIND. 1HR CHART (THUR 20 SEPT 2018 15:49 GMT)
AUDUSD: INVERTED HEAD AND SHOULDER IN PLAY, 1HR CHART (THUR 20 SEPT 2018 14:45 GMT)
EURUSD: THE BULLS HAVE 1.1792 IN SIGHT 1HR CHART (THUR 20 SEPT 2018 12:25 GMT)
GBPUSD: THE BEARS ON THE RUN! RESISTANCE FAST TURNING TO SUPPORT 1HR CHART (THUR 20 SEPT 2018 11:01 GMT)
EURUSD: THE BATTLE FOR THE 1.1720! – THE BEARS AND THE LAST STAND! 1HR CHART (THUR 20 SEPT 2018 09:40 GMT)
USDJPY: BULLS AT THE 112.13! – 1HR CHART (THUR 20 SEPT 2018 06:42 GMT)
USDCAD: NO WAY UP! BLOCKADE UP HILL – 1HR CHART (WED 19 SEPT 2018 18:30 GMT)
EURUSD: THE BATTLE FOR THE 1.1720! THE BEARS ARE NOT GIVING UP THE FIGHT, AS THE BULLS CALL FOR BACK UP – 1HR CHART (WED 19 SEPT 2018 18:13 GMT)
GBPCAD: TESTING SUPPORT – POSSIBLE DOUBLE TO FORMATION – 1HR CHART (WED 19 SEPT 2018 17:57 GMT)
GBPJPY: PREPARING FOR ANOTHER LEG UP – 1HR CHART (WED 19 SEPT 2018 17:47 GMT)
GBPUSD: LOCKED IN 1.3131 – 1.3171 RANGE – 1HR CHART (WED 19 SEPT 2018 17:13 GMT)
USDJPY: TESTING SUPPORT BEFORE ANOTHER LEG UP – 1HR CHART (WED 19 SEPT 2018 17:13 GMT)
GBPUSD: REJECTION AT THE RESISTANCE – 1HR CHART (WED 19 SEPT 2018 01:35 GMT)
EURUSD: FIRST SUPPORT IS BROKEN – 1HR CHART (FRI 14 SEPT 2018 16:11 GMT)
EURUSD: REJECTION AT THE FIRST RESISTANCE – 1HR CHART (FRI 14 SEPT 2018 09:32 GMT)
GBPJPY: CONSOLIDATING – 4HR CHART (FRI 14 SEPT 2018 09:11 GMT)
GBPCAD: APPROACHING NEXT RESISTANCE – 1HR CHART (FRI 14 SEPT 2018 08:45 GMT)
EURUSD: TESTING RESISTANCE CLUSTER – 1HR CHART (FRI 14 SEPT 2018 08:10 GMT)
EURCHF: CONSOLIDATING – 1HR CHART (FRI 14 SEPT 2018 07:25 GMT)
AUDUSD: CHALLENGING THE NEAREST RESISTANCE – 1HR CHART (THUR 13 SEPT 2018 22:40 GMT)
USDCAD: DRIFTING ABOVE THE NEAREST SUPPORT – 1HR CHART (THUR 13 SEPT 2018 22:26 GMT)
EURUSD: CLUSTER OF RESISTANCES ABOVE – 1HR CHART (THUR 13 SEPT 2018 22:16 GMT)
EURGBP 1HR CHART (THUR 13 SEPT 2018 13:00 GMT)
Caution: Forex trading is risky. It is advisable that you acquire enough experience before you start to trade with real money. Do not invest in money that you cannot afford to lose (it is important that you study leverage, lot size, and money management in Forex trading very well before you execute your trade decision).
To trade in the Forex Market you must first sign up with a Forex Broker. There are lots of Forex Brokers out there that offer good service to their clients. Services include tight spread, partnership amongst others. My preferred brokers are 1. Alpari (https://alpari.com/en/?partner_id=1244646) and 2. FXTM (http://forextime.com/?partner_id=4806145). You may sign up through any of the partner links above. You may also send me a mail in case you need me to guide you on how to sign up and start trading (email@example.com).