This is one of the most commonly asked questions among traders’ especially new traders who have just joined the field of forex trading.
When I first pick up forex trading, I am having problem with finding support and resistance. I have read books about candlestick patterns and they simply tell me that support and resistance level are previous lows and highs.
When I look at the chart, I was shocked to find so many different levels of swing highs and lows and I do not know what to do with it. After trading for a few years now, I am able to easily find out IMPORTANT support and resistance levels that can be of help to my trades.
If you have been attentive in reading this post, you will find that I have capped the word important because not all swing highs and lows are useful and what you really need to do is to identify significant levels instead of just level of support and resistance.
Therefore I am going to share with you some of the ways to find them
1) Pivot Point: The pivot point is one of the most reliable levels of support and resistance any trader can trade with. This is because it is a tool that is widely used by those commercial traders and you will find that the price often seems to respect the pivot levels.
Basically you do not need to need to know the formula to calculate pivot point as there are a lot of websites online that provides you with pivot point calculator. All you have to do is to input the open, high, low and close values into the calculator and it will calculate the levels for you.
Do note that the pivot points are significant levels that you must take note. They are usually good entry and exit points for traders.
2) Fibonacci Level: My second favourite level of support and resistance is the forex Fibonacci. These are levels that you can plot between a swing highs and lows and it will then present you with various other levels. However the most significant Fibonacci levels are the 0.382, 0.5 and the 0.618.
3) Previous Support and Resistance: This is one of the more commonly talked about levels in forex books and forex courses. Usually you will find that the previous swing high will become your new level of resistance and the previous swing low will become your new level of support.
However like what I have written at the beginning of this post, there are a lot of swing highs and lows in a chart. Therefore you need to be able to differentiate between important swing highs and swing lows.
An important swing high is one that forms a sharp inverted V-shaped pattern and an important swing low is one that forms a sharp V-shaped pattern. Those V and inverted V-shaped pattern that is not sharp are considered not so useful levels of support and resistance.
4) Trend Lines: The last important level of support and resistance is the trend lines especially the one that is tested a few times. The more times a trend line is tested, the more significant it becomes.
These are the four levels of support and resistance that I use to trade everyday and I hope that it can become your trading tool one day.