Drawing Forex Support and Resistance Zones
Support and Resistance zones means the level of Demand (where buyers hold the price) and Supply (where sellers hold the price). Understanding and knowing how to draw Support and Resistance zones on your forex charts is one of the key skills and habits of any successful trader.
Using the support and resistance is also something we use in our trading strategy. To draw the levels of Support and Resistance you can use the Trend Line and Horizontal Line in your trading platform.
What is Support and Resistance
Support is price level where the buyers were much stronger than the sellers. This results in price moving higher.
Resistance is price level where the sellers were much stronger than the buyers. This results in price moving lower.
When it comes to trading forex (or any other market), PRICE is always right, and it will be always driven by the fear and greed of traders, by supply and demand. Whole price action is actually showing us the human behaviour. You never see price moving up all the time, but it will always make retracements on the way. In other words, price is a living thing – it breaths in and out before it decides to move next.
How can Support and Resistance levels help you in your own forex trading
We use support and resistance for many reasons:
* to find a better (quality) trading opportunities.
* to avoid mistakes such as, buying close to the major resistance, or selling close to the major support.
* to avoid taking trades that does not have enough room to target in terms of “Risk vs Reward” ratio for trade management.
When we are drawing the major support and resistance zones, we do that only on the high time frames such as the Weekly, Daily, 4 Hourly charts.
“Why only on higher time frames?”
Because they are path of least resistance.
It does not matter what trading rules you have (or trading style), you need to understand what is really going on on the markets. You need to understand the big picture, before you even start thinking about any trades. You will see on the long-term, things such as proper preparation is one of the keys to your trading success.
When you use the high time frames you will increase your trading probabilities and make better trading decisions on the long-term. That means it is more likely your trades and positions will work out as per your trading plan rules and scenarios, than not.
Here are the steps when looking at your forex chart.
1) Focus on the raw price and follow price moves.
2) Recognise the highs and lows where price bounced in the past.
3) Mark only the levels that are close to the current price level (simplify). Do not make the mistake of trying to draw every level you see. This will only confuse you and you will hardly find any good trading opportunities, if you will draw levels every few pips away.
Focus on the major market turns. Draw only the levels that have at least 3 swing highs/lows (»touches«). More touches means price respected that levels a lot. That means this level can be respected also in future!
When drawing Support and Resistance zones, only thing that matters, and you should be looking at, is the PRICE!
What majority of retail traders are doing is they complicate things. Instead of focusing just on the pure price action to draw their major support and resistance zones, they start using useless indicators which does not help them at all.
You have to ask yourself, what is only thing that is true? What »data« was and will be always right?
Only the price is real and show what is really going on the markets. Does not matter whether is forex trading, stocks trading … all markets are always driven by the fear and greed of traders, by supply and demand. All price action is actually showing us the human behaviour. You never see price moving up all the time, but it will always make retracements on the way. In other words, price is a living thing – it breaths in and out before it decided to move next.
Only the price is real and important. Everything else is just a distraction and noise.
You want to really keep your trading simple as much as possible.