I'd like to share another awesome article from Jonathon Fox, fulltime FX trader and head trading coach at Forex School Online. Give it a chance learn it, practice it, and profit consistently. Good luck!
------------
Many traders hold the belief that trading has to be complicated. They believe that the reason they are losing money is because trading is a very complicated business. They believe that they just have to figure it out. This thinking is complete bull dust!
A lot of traders I talk with have a very familiar story. When looking to become profitable in the Forex market they start adding indicators to their charts. They continue to lose money and then think the more indicators they add to their charts the better chance they have of making money! Before long the price is covered in many different indicators and rubbish! All this tends to do is make the trader very confused. They have successfully made trading complicated but they still won’t be profitable! Many trader’s overlook the very basics of Forex trading. Trading can be simple and in fact it should be! One of the most time proven and powerful trading strategies is support and resistance.
Support and Resistance
Support and resistance works simply due to the fact that many traders follow the same levels in the market. These levels end up becoming self-fulfilling because many traders all over the world act the same way at the same levels. An example of this is when price gets to a solid support level. People all over the world will start buying at this support level, and before you know it price has jumped and rejected this support level!
When looking to make a trade from support or resistance traders should stick to only the best and most obvious levels. The more obvious and important the support or resistance level, the more chance of other traders noticing it also and all acting in the same way.
How to Plot Support and Resistance
Quite often once a trader has learnt how to plot support and resistance they go way over board. They begin plotting lines upon lines. It is a plain fact that this is just not necessary. All that is needed is two lines. Keep in mind we are trying to keep our charts clean and simple. At the end of the day we need to be able to clearly see the price and how it is behaving.
When plotting out support and resistance levels we need to think of them as zones. This is very important because this is not an exact science. Support and resistance cannot be marked to the pip and should be plotted with the level in mind rather than the exact line.
Only two levels are required to be marked on trader’s charts. One needs to be marked above where price currently is and another for below where price currently is. There is no point in marking levels above or below these two. For other support and resistance levels to come into play they would first need to break the two levels we have marked. Once price does break through one of the two levels plotted we can then reassess and again mark the two levels that apply.
An example of marking these two levels above and below price is below. Notice how clean the chart is and also that the lines have been marked very thick to represent levels rather than specific lines.
We must remember what support and resistance is when marking it on our charts. Support and resistance areas are simply the previously tested levels in the market that price has respected. If price has respected an area in the past there is a good chance price will respect it again, should price test it.
When marking our two levels above and below the current price we are simply looking for the two levels that price may struggle at or reject. An example of solid support and resistance being marked on a chart is below. Take note of how these levels were respected in the past. We could reasonably expect price to once again respect these levels should it test them.
How to use Support and Resistance with Price Action Trading
Support and resistance levels should be the cornerstone of a Price Action trader’s arsenal but they shouldn’t be used alone. Traders should look to use these levels with Price Action signals as confirmation to enter a trade.
Using support and resistance in this way a trader can increase their chance of placing a winning trade. An example of making a trade from a resistance level is below. Notice this Pin Bar reversal tested this level before firing back lower and confirming that the resistance level is still valid.
Like all tools and trading techniques support and resistance is something that needs to be practised and perfected. Don’t go straight to trading on a live account. Practise plotting your levels on a demo account and never go live until you have proven you can make money consistently on a demo account.
.jpg)
