Traders cannot imagine how a trading without support and resistance levels would be possible. These levels determine the extent to which the currency pair will be traded and trigger rapid price movements.
Let’s give a brief definition of these two words. Resistance levels are the highest levels, which are quite difficult for a currency pair to go up. It’s not that the currency pair can’t cross the resistance – it might. But there must be a very strong supporting factor. Otherwise the currency pair will reverse. Support levels are like the floor for a currency pair, as it will help slow down the currency pair’s decline. A currency pair may break below the support level. But it is highly prone to a reversal at this level.
In other words, these levels help decide when to open and close trades for profit. That’s why it’s important to know how to set them up correctly. We’ve put together the best techniques you can use to find support and resistance levels.
Swing highs and lows
It starts with a very short definition of “swing highs and lows”. Swing highs are the highest prices within price action. Price volatility is performed in waveforms, so the swing high points to the highest price within the wave before the price falls. Swing low, on the other hand, points to the lowest price within the wave before the price reverses.
Look at the easiest technique first. You can find everything you need through the price chart without any tools or indicators. All you have to do is specify the previous highs and lows that are closest to you.Of course, the highs and lows you need will be close to the current price. Choose the level that is most noticeable – the point where the price is unable to break through and the price will reverse. The larger the price reverses from this level, the more powerful this level becomes. To specify the level you want, draw a horizontal line.
Let’s look at the chart of the 1.15 level, it seems to support EUR / USD.The currency pair bounced back from that level twice: in late May and mid-June.
The psychological level appears when the reference price ends with 0 (the higher the level is zero, the more important it is), for example 1.50, 95.00 and so on.The psychological level arises due to human nature. For example, if you ask someone about the expected future price of GBP / USD, people will generally not answer, 1.3028-1.4123 But they’ll assume 1.30-1.40. Based on this logic, when a trader places an order, they pick a “round” number, so the currency pairs are traded on these numbers.
Take a look at the chart. The US dollar index has been unable to break through the $ 95 level for a long time. And even if it had surpassed that level, it would not be able to maintain a foothold above it.
The equilibrium level (1.0000) is the most important psychological level. For example: Traders have been wondering if the EUR / USD will reach equilibrium levels in 2015 – 2017, at that time the value of the Euro dropped and stopped at 1.0350.
You should remember that a trend is your friend and it can help you in different trading situations. Identifying trends is not difficult. Look at the chart if you see price increases or decreases over a long period of time, that is, the higher the highs and the higher the lows mean the market is trending up. In contrast, lower highs and lower lows indicate a downtrend in the market.
When looking for a trend, you should keep in mind that it will not be horizontal and must be connected at least 2 points (2 highs or 2 lows) .Also, the second point where you draw the trend line should be approximately further from the first. 20-30 candles
The more the price touches the trend line, the stronger the trend.
Take a look at the NZD / USD chart, there you can see an uptrend. All you have to do is draw a trendline through each of the highest points. The line then becomes resistance for the currency pair. On the other hand, if you draw a line through the lowest point, you get a support level.The same technique can be used for downtrend as well.
Pivot point indicator
When you use this indicator, you will see 3 resistance levels, 3 support levels, and one pivot point, the boundary that determines the next price movement. If the trade is higher than the pivot point, then the movement should be bullish, otherwise it is predictable that the move will be bearish.Depending on the frame, resistance and support levels will show a precise target for the asset. Time of your choice The benefit of the pivot point indicator is that these levels will change each time the range of the timeframe you choose expires.
Note: You can choose any time frame. But we recommend that you use the weekly time frame. The indicator will show you the weekly target for the currency pairs, so you will be able to build a longer term trading plan.
Looking at the chart, you can see that over the weekend the currency pair broke through the support at 0.69, however it was unable to break through the next support at 0.6850, so it reversed.
This tool is used to set resistance and support levels or to predict the possible extent of price action. Its main goal is to find possible remediation of major trends. The key levels of Fibonacci retracements are 38.2%, 50% and 61.8%, which are the strongest support or resistance levels depending on the direction of the price.
Using this tool is very easy. Draw a trendline between the highest and lowest values. If you want to learn how to use this indicator correctly, you can learn more about it here.
Take a look at the EUR / USD chart, you can see that this currency pair bounced off the 38.2 Fibo level and moved to 188.8.131.52 would be a support for EUR / USD.
Quick tip: You don’t have to use just one technique. You can combine them so that you can get more accurate goals.
In other words, we can say that resistance and support levels are at the heart of a profitable trading. You can use one of the techniques mentioned above, or you can combine them. Of course, you will need to use them to reduce your risk and increase your profit.