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.
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.
Final words
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 Urban Forex can help you with.
Watch the video above for the full lesson so you can continue to enhance your skills and be better everyday.
#UrbanForex - Be conscious of your trading!
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Editors’ Picks
EUR/USD edges lower toward 1.0700 post-US PCE
EUR/USD stays under modest bearish pressure but manages to hold above 1.0700 in the American session on Friday. The US Dollar (USD) gathers strength against its rivals after the stronger-than-forecast PCE inflation data, not allowing the pair to gain traction.
GBP/USD retreats to 1.2500 on renewed USD strength
GBP/USD lost its traction and turned negative on the day near 1.2500. Following the stronger-than-expected PCE inflation readings from the US, the USD stays resilient and makes it difficult for the pair to gather recovery momentum.
Japanese Yen trades just shy of 157.00 versus the USD
The Japanese Yen weakens across the board after BoJ announced its policy decision. A shortlived spike in the Yen may be testament to an attempt by the Japanese authorities to intervene. US PCE Price Index shows higher-than-expected inflation but does little to impact USD/JPY which almost touches 157.00.
Editors’ Picks
EUR/USD edges lower toward 1.0700 post-US PCE
EUR/USD stays under modest bearish pressure but manages to hold above 1.0700 in the American session on Friday. The US Dollar (USD) gathers strength against its rivals after the stronger-than-forecast PCE inflation data, not allowing the pair to gain traction.
GBP/USD retreats to 1.2500 on renewed USD strength
GBP/USD lost its traction and turned negative on the day near 1.2500. Following the stronger-than-expected PCE inflation readings from the US, the USD stays resilient and makes it difficult for the pair to gather recovery momentum.
Gold struggles to hold above $2,350 following US inflation
Gold turned south and declined toward $2,340, erasing a large portion of its daily gains, as the USD benefited from PCE inflation data. The benchmark 10-year US yield, however, stays in negative territory and helps XAU/USD limit its losses.
Bitcoin Weekly Forecast: BTC’s next breakout could propel it to $80,000 Premium
Bitcoin’s recent price consolidation could be nearing its end as technical indicators and on-chain metrics suggest a potential upward breakout. However, this move would not be straightforward and could punish impatient investors.
Week ahead – Hawkish risk as Fed and NFP on tap, Eurozone data eyed too
Fed meets on Wednesday as US inflation stays elevated. Will Friday’s jobs report bring relief or more angst for the markets? Eurozone flash GDP and CPI numbers in focus for the Euro.
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