How To Trade Currency Using Support and Resistance
March 2, 2009 by Kelvin
Filed under Forex Strategies
Support and resistance are importance level to note in forex trading. The most current support is usually the previous low before your current price and the most current resistance is usually the previous high before your current price.
When a price move past a resistance level, that level will immediately turns into a support and if the price happen to move back to that level again. It will most probably be push upwards by the support and the opposite is true as well.
If the price move below a support level, that level will immediately turns into a resistance and if the price happen to move up to that level again. It will most probably be push downwards by the resistance. Therefore the support and resistance are usually the level where traders place their stop loss and limit.
Some of you may be wondering how you are going to trade as there are numerous support and resistance in your chart. In fact, it is worse if you are looking at a lower time frame chart.
Therefore I will be sharing with you how I actually categorize the significance of the support and resistance
How significant a support level or resistance level is depends on the number of times that level have been touched by the price movement. If I observed price bouncing off a specific support level several time, I will categorized that level to be of high significance and I will be very careful whenever the price move near that line. In fact, there is a way to make money through trading that significance line but i will go through them on my subsequent post.
So how should you trade support and resistance?
1) You should always wait for a price action to pass through the previous support or resistance by at least 5 pips before you enter a trade. In addition, you should also wait for candle to close above the resistance or below the support to confirm a breakout.
2) Once you have enter your trade, you should also place a stop loss of at least 20 to 30 pips.
3) A good trader will always have an entry and exit strategy on hand before he or she enters a trade. Therefore you should also decide where you want to exit a trade once you enter a trade. For me, I always exit my trade 5 to 10 pips before a resistance if I am going long or 5 to 10 pips before a support if I am going short.
Hope that this post has provided you with some insight on how to trade support and resistance. You can find out more about other forex strategies here. In addition, I have posted free forex trading signals for you to use so that you can improve your trading accuracy.
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