Introduction
The first point to note while practicing forex trading for beginners is how to identify the support and resistance levels. The best way to determine these two levels has been the support and resistance levels. While support often served as a level for placing a buy order, the resistance levels served as the exit points and best position for a sell order. This work will therefore help you learn how to identify the support and resistance levels while taking positions in the market.
Understanding Support And Resistance In forex Trading
Support and resistance levels are two important trading strategies that traders use in determining their entry and exit points. While the support levels provide a good entry point for a buy order, the resistance levels provide a selling point for traders in the market. There could be different support and resistance levels depending on the timeframe used.
Thus, we have lower and higher support and resistance levels. When the nearest support is defeated we can look up to the price visiting the lower support and so on. This is applicable to the resistance levels too.
Meaning Of Support Level In Forex
The support level refers to the lower price levels where the market reversed severally in the past when it got to such regions. It is called the support level based on the fact that traders usually came to defend such levels whenever the price got to them. The support levels provide an excellent buy opportunity for traders who look out to buy when the price is low.
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One can identify the different support and resistance levels using various time frames such as hourly, daily, weekly and monthly support and resistance. The best way of choosing support is to first begin with the largest timeframe such as monthly and bring it down to the lower timeframe to determine one’s best entry for a buy order.
Quoted from TN’s Article: “There is one physical exchange that closes at a specific time of day. For example, when you hear that the US dollar closed at a given price, it simply means that it was the price at market close in New York.”
Meaning Of Resistance In Forex Trading
Resistance refers to those higher price levels where the market prices usually reversed from. For some, it is called the take profits levels as many traders usually set their take profit target at such a level which results in a massive decline in prices, whenever the market prices gets to such levels.
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Often, the resistance levels provided a good sell opportunity to sellers in the market. Before any higher level would be considered as resistance, the market prices need to have reversed at such levels at least three to four times in the past.
One can always identify the resistance levels using the different timeframes. However, the higher time frames are best for determining the various resistance points.
How To Identify Support And Resistance In Forex Trading
Often traders experience difficulties in identifying the support and resistance levels based on the fact that prices tend to reverse at multiple levels in the market. This is not to be confused with support or resistance. Before any level could be considered as either a support or resistance level, the market needs to reverse at such levels at least three to four times. It is important to use the higher time frames in identifying the different support and resistance levels before breaking them down into the lower time frames.
Important Points To Note While Using The Support And Resistance Strategy
The fact that a large volume of orders is usually placed at the support and resistance levels often causes the market price to exceed them by a few pips before reversing. There are few instances where the market price could exceed them by 10 – 20 pips or more. This is usually called false breakouts.
