In today forex faq, I will be going through this question by one of our fellow traders.
How can one know when a strong support and resistant level is?
In my opinion, the strong level of support and resistance are the following
- Major Swing High or Low
The pivot levels are usually used by those professional traders which make them extremely powerful. You will usually find the price respecting these pivot levels.
If you see the price breaking a pivot level, you will also see that the movement will be pretty strong.
As for the Fibonacci levels, the 0.382, 0.500 and 0.618 levels are usually strong levels of support and resistance. The market usually respects these levels as compared to other levels.
The swing highs and lows are N and V shaped candlestick formation. In order to identify whether a swing is strong or not, you can see the depth of the swing.
Here is the next question from our fellow trader
How do you decide when to close a trade?
Most of us know when to enter a trade but not every one of us knows exactly when the best time to exit our position is.
In fact, not having a proper exit strategy is the main cause of losses for many traders. I have met traders who can enter their position but as they lack the knowledge to exit their position, their position is usually stopped out by the reversal of the market movement.
For me, I usually exit my position at a major support and resistance level. This is because these levels are usually places where the market will reverse or retrace and stop you out.
Besides using major support and resistance levels, I also make use of predetermine risk reward ratio to exit my position. Let says that you have decided on a risk reward ratio of 1: 2 for every trade and you have entered a trade with 20 pips stop loss.
In this case, you should decide to take profit at the 40 pips level.
I hope that I have answered the above 2 questions well and if you have any suggestion, do feel free to give your comment below.