Support and resistance areas or levels are tools that every trader who uses technical analysis, should make use of. It’s analysis is a major part of trends since it can be used to determine when a trend will end. Hence both entry and exit areas can be identified with the help of support and resistance.
The Love for Support and Resistance Trading
Support and resistance areas/levels are based on how price has behaved in the past. If the price failed to break through a certain area in the past, it can be expected that it will run into trouble at that same price again. Whether it will hold or reverse price, is something else.
Support and resistance as a tool
The strength of a level or support and resistance depends heavily on how many times the level has been tested in the past and how strong the price reaction was each time. This means that the strength of a level is subject to your interpretation of it. For instance if you see that a price has reacted 5 times of a support in the last 6 months, this looks like a strong level, right? But what is the reaction of the price at that level becomes weaker every time? Suddenly it has a very different outlook altogether.
Trading forex is a numbers game or a game of probability. As often said, there is no such thing as a 100% win rate or a 100% certainty that a trade will play out. Using tools such as support and resistance will only increase your odds. So use support and resistance as an additional tool instead of a leading indicator to take action. So using multiple tools that all indicate a strong reaction at the same level, increases your odds.
Learning how to determine support and resistance levels takes time. Learning how those levels takes time. Learning how to use it in combination with other tools…you guessed it, takes time. What I’m saying is that if you really want to master something you need to consistently apply it for a decent period of time. Learning how to use it and getting feedback on your work is something that a trading team or a mentor like the ones we have at Forex Watchers can help you with.