Drawing Support and Resistance- every well versed Forex enthusiast is surely aware of the importance of drawing support and resistance towards profits and trading. Today we bring you some tips that will help towards the familiarization and mastery of the said strategy.
The Support and Resistance Concept
When reading a chart, there are moments where buyers and sellers create an equilibrium. This level is often illustrated as a horizontal line and they are usually seen on almost every time frame. But as per observation, this line is usually derived from weekly and daily charts which are considered higher time frame charts.
Notes to Remember Regarding Support and Resistance
Aside from knowing where to locate this concept on your chart, here are other notes that need to be remembered towards the mastery of this major concept in forex trading.
1.The support concept can be determined by spotting a rate bottoming out brought by the bearish movement overrunning the bullish rates at a consistent price horizontal level on the charts.
- Support is also known as a floor because this is where market rates bounce off.
- Another explanation for resistance is determining the area where the rates start to fall. This is usually the top or highest areas in the chart.
- These two concepts (support and resistance) are applicable to range bound markets.
- Range bound market is a type of market where one needs to spot the ceiling and the floor of the chart.
- When trading, refrain dealing on areas that are called no fly zones. These zones are vividly seen in the middle range.
- Swing patterns help a trader identify a trending market.
- Price movements go an upwards zigzag pattern that look like stairs during a bullish trend.
- You can find resistance in areas where swing highs exist.
- Put your attention into the swing levels as they serve as a perfect spot for the reversal of rates as well as continuation of trends.
Disadvantage of Support and Resistance
Despite the fact that support and resistance trading seem straight forward, some traders do not buy its advantage because they believe that the levels that are seen in the chart are mostly based on previous price movements. They cannot be used to predict upcoming market behaviour.
When trading with Support and Resistance it is a must to remember several key points for the said concept. One of which is the manner of spotting the concept on the chart. Next are the buying and selling rules which need to be fully mastered. Trading support and Resistance also has its disadvantage just like any other trading concepts but if you are able to close half of your position price moves halfway between support and resistance levels, move your stop loss and trail stop your profitable trades then you will have a great chance to generate profits using the concept. The concept is easy to follow,you just have to make sure that you observe and judge accordingly in order to succeed.