This is a simple way to identify Support-Resistance and Trend-Line in Forex trading.
“SUPPORT and RESISTANCE” is common jargon for areas on the chart where the price has a difficult time breaking through. 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.
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Support occurs when falling prices stop, change direction, and begin to rise. Support is often viewed as a “floor” which is supporting, or holding up, prices. Resistance is a price level where rising prices stop, change direction, and begin to fall.
Knowing where these levels make it much easier to decide when to open and close trades, but how can we locate these prices, to begin with…?
Auto Support-Resistance indicators are good tools to help us draw support and resistance area automatically and accurately.
If price breaks support or resistance, the price often continues to the next level of support or resistance.
Support and resistance levels are not always exact; they are usually a zone covering a small range of prices so levels can be breached, or pierced, without necessarily being broken.
As a result, support/resistance levels help identify possible points where price may change directions.
- In an UPTREND, the price makes higher highs and higher lows.
- In a DOWNTREND, the price makes lower lows and lower highs.
Connect the highs and lows during a trend. Then, extend that line out to the right to see where the price may potentially find support or resistance in the future.
These simple lines highlight trends, ranges, and other chart patterns.
They provide traders with a visual of how the market is currently moving and what it could do in the future.
MINOR support and resistance levels are expected to be broken.
Minor support or resistance provide analytical insight, and potential trading opportunities (discussed later).
MAJOR support and resistance are price areas that have caused a trend reversal recently.
If the price was trending higher and then reversed into a downtrend, where the price reversed from is a STRONG resistance level.
Where a downtrend ends and an uptrend begins is a STRONG support level.
When the price comes back to a major support or resistance area it will often struggle to break through it and move back in the other direction.
When buying, place a stop loss several cents below support, and when shorting place a stop loss several cents above resistance.
Consider waiting for some CONFIRMATION that the market is still respecting that area. Take a look at the image below.