GUIDED TRADING ACCOUNTS
SIMPLIFIED TRADING CONCEPTS – Lesson 3:
Support and Resistance Levels
Another common concept in the life of Fx traders. Support Levels tend to stop price from falling below a specific point and Resistance Levels act like a price ceiling that price cannot break above.
Knowing where these levels are make it much easier to decide when to open and close trades, but how can we locate these prices to begin with? Today we will cover 3 simple ways to identify support and resistance in Forex.
You’re wondering how you can identify those levels. There are 3 ways to do that:
1- Psychological Levels:
Remember how we said that Forex is all about people buying and selling? Well, psychologically, when people try to think about what the Euro would be worth in the near future, you would never hear them say 1.1234, right? Instead it will be a number with at least two zeros, like 1.1200 or 1.1500, and sometimes even three zeros like 1.3000.
Look at the screen shot of the last couple of days from last week, and notice how much trading is affected by the Psych levels (horizontal green lines):
2- Swing Highs and Lows:
Another normal behavior in financial psychology: history.
Swing Highs and Lows are levels in the past where price had a difficult time breaking through. As price moves up and down, each level that price has bounced off of could be a level in the future that price bounces off of again. This is a manually intensive method and takes time to draw on all the currency pairs that we trade, but can pay off in the long run.
Notice in the same period, how many peaks touch the same upper green line, and how many dips touch the lower green line:
3- Pivot Points:
Arguably the easiest support and resistance levels to add to our charts, pivot points are a built-in indicator on Fx platforms that will automatically draw key levels without any effort on your part at all.
Support and resistance doesn’t have to be confusing. You can mix and match any of the methods above and create a healthy amount of price levels that you can trade.
For example, based on the previous two lessons, if you read that:
– the daily trend is upwards
– you’ve learned to be aware of the time: not to trade just before a HotPoint or before the market closes Friday evening
– a HotPoint passes, and the trend is still upwards
– so you’re watching the immediate pattern, looking for a dip to buy (because the daily trend is upward). Right?
– Well now you have also learned to be aware of the potential Support & Resistance levels. So, for example, if the price of the EUR/USD in going up, and gets close to a Resistance Level it hasn’t broken for awhile, you wait and watch if people will sell in mass at that level creating a sudden dip, or if people will keep on buying, which would usually speed up the upward trend and in such cases it keeps going in the same direction for awhile.
There’s nothing like trying out by yourself. And if ever you have a question, don’t hesitate to ask your Financial Architect or send us an email to firstname.lastname@example.org.
Disclaimer: this blog was created to help beginner traders grasp some of the concepts of trading in a simplified way, inspired by other blogs or articles where traders have tried to do the same, and gathered here the way we saw useful to our clients. The concepts on this blog are in no way full-proof guaranteed successful trading or predictive methods, nor are they the only way one might trade successfully. Atlantis Financials and Charbel Khoury will not be held responsible for the results of the way the concepts in this blog are applied by readers and clients.