A thorough understanding of how to effectively use support and resistance is crucial for any aspiring professional forex trader. There are essentially 4 primary ways to implement support and resistance levels into your forex trading routine. The 4 primary support and resistance forex strategies include: using support and resistance to trade consolidating markets, using support and resistance to trade trending markets, using support and resistance to trade breakouts, and using support and resistance combined with candlestick strategies to find confluent areas.
Trading Ranges
Notice in the chart below how price has been stuck in a trading range between about 135.85 and 131.00 for over 2 months. By watching for price to enter into a trading range scenario like the GBPJPY daily chart below, you can simply buy or sell bounces off the trading range high and / or low. When price gets near the top of the range you can sell with a stop loss above the highest high of the trading range, and when price gets near the low of the trading range you can buy with a stop loss below the lowest low of the trading range.
Trading Ranges
Notice in the chart below how price has been stuck in a trading range between about 135.85 and 131.00 for over 2 months. By watching for price to enter into a trading range scenario like the GBPJPY daily chart below, you can simply buy or sell bounces off the trading range high and / or low. When price gets near the top of the range you can sell with a stop loss above the highest high of the trading range, and when price gets near the low of the trading range you can buy with a stop loss below the lowest low of the trading range.
Trending Markets
Trending market conditions are arguably the best to trade in; they can be very consistent and lucrative, especially in forex. Knowing how to effectively utilize support and resistance in trending markets will make you a much better trader. Notice below in the daily chart of USDJPY there was a downtrend in place and nearly every time price broke through to new lows it eventually retraced back up to challenge this break down level. This is the point where you want to look to initiate new positions; in a downtrend like the example chart below, you want to watch for a pullback up to an old support / new resistance level and in an uptrend you would wait for a retracement down to an old resistance / new support level.
Breakouts
Knowing how to use a breakout forex strategy depends upon having a thorough understanding of support and resistance. The problem many forex traders make when trading breakouts is that they get filled to early; before the actual breakout occurs. The best way to try and avoid this is to set your buy or sell order above or below the highest or lowest resistance or support level. In the example below of daily USDCAD we can see a strong resistance level near at 1.0215, once price broke past this level it shot higher by over 500 pips. When trading breakouts make sure to set your entry order above or below the most well-defined high or low, as in the example below.
Support and Resistance with Candlestick strategies
Using support and resistance in combination with candlestick signals can be a very effective and accurate way to trade the forex market. This is done by finding a strong area of support or resistance and then waiting for a well-defined candlestick pattern to develop at or near the support or resistance area.
In the chart example below of daily EURJPY, we can see 2 candlestick patterns known as a “hammer”. The first hammer set the support level near 127.00-127.50. When the second hammer then formed showing rejection of this support level, we had a support level in combination with a candlestick pattern, this is known as confluence of signals and is a very strong trading setup. There are many other candlestick patterns and strategies that can be used in combination with support and resistance levels, this just one example.
You now have a basic background in support and resistance forex trading strategies. Support and resistance levels are very important in all financial markets and can actually be used in combination with price patterns as a stand-alone trading method, meaning you can trade successfully with only a thorough understanding of support and resistance and price patterns. Keep everything simple like this and you will be on the track to forex trading success.
Trending market conditions are arguably the best to trade in; they can be very consistent and lucrative, especially in forex. Knowing how to effectively utilize support and resistance in trending markets will make you a much better trader. Notice below in the daily chart of USDJPY there was a downtrend in place and nearly every time price broke through to new lows it eventually retraced back up to challenge this break down level. This is the point where you want to look to initiate new positions; in a downtrend like the example chart below, you want to watch for a pullback up to an old support / new resistance level and in an uptrend you would wait for a retracement down to an old resistance / new support level.
Breakouts
Knowing how to use a breakout forex strategy depends upon having a thorough understanding of support and resistance. The problem many forex traders make when trading breakouts is that they get filled to early; before the actual breakout occurs. The best way to try and avoid this is to set your buy or sell order above or below the highest or lowest resistance or support level. In the example below of daily USDCAD we can see a strong resistance level near at 1.0215, once price broke past this level it shot higher by over 500 pips. When trading breakouts make sure to set your entry order above or below the most well-defined high or low, as in the example below.
Support and Resistance with Candlestick strategies
Using support and resistance in combination with candlestick signals can be a very effective and accurate way to trade the forex market. This is done by finding a strong area of support or resistance and then waiting for a well-defined candlestick pattern to develop at or near the support or resistance area.
In the chart example below of daily EURJPY, we can see 2 candlestick patterns known as a “hammer”. The first hammer set the support level near 127.00-127.50. When the second hammer then formed showing rejection of this support level, we had a support level in combination with a candlestick pattern, this is known as confluence of signals and is a very strong trading setup. There are many other candlestick patterns and strategies that can be used in combination with support and resistance levels, this just one example.
You now have a basic background in support and resistance forex trading strategies. Support and resistance levels are very important in all financial markets and can actually be used in combination with price patterns as a stand-alone trading method, meaning you can trade successfully with only a thorough understanding of support and resistance and price patterns. Keep everything simple like this and you will be on the track to forex trading success.
