Support & Resistance in Trading Forex
Once you’ve gotten your feet wet and succeeded in making a few entries into forex, it’s time to understand the concept of support and resistance. Support and resistance levels constantly fluctuate, even in the strongest of markets. They are not always so easy to predict, but the more you know about how they work, the better-suited you’ll be to make profitable entries and exits. Get a basic understanding of how prices bounce and break and you’ll know when to make your best deals.
Trading After Levels Bounce
Although it’s possible to set your orders only on support and resistance levels and then hope for the trade to eventuate, that is not always the best method. According to this system, it is expected that the support and resistance levels will hold steady without arriving at the price. The better way to place trades is by first enhancing the odds that will give you some hope for success. First, it’s a really good idea to get confirmation that the support and resistance will actually hold. Your best bet would be to wait patiently and watch the movement. Don’t jump right into the water. Wait. After the price bounces, then begin to set your entry. That way you have a better chance of avoiding the part of the deal where the price moves along too fast and ends up by breaking through your support or resistance levels.
Watching the Levels Break Away
It’s too bad, but it is a fact that support and resistance levels don’t hold forever. These levels can give away, so knowing what to do might help you avoid future losses. One way to handle breakouts is to either sell or buy when you see the price passing through the support or resistance levels. But be sure that the prices passed through with wide margins, so there’s no doubt about it. Another way of looking at breakaways that leave you holding a losing position is to hang on. Keep in mind that when you are ready to close out your position, you will be taking the opposite side of that trade. If there is a high enough selling and liquidation of positions that are losing by traders, and it all goes on at the same level where the support breaks, the prices will reverse movement and begin to fall again. This is what happens when support levels that are broken go on to become resistance.
Sitting by Patiently
The idea that levels of support and resistance that have broken will retest does not always happen. Sometimes the price will just keep on moving in the same direction, while you’re left waiting. Be careful about using stop loss orders to hold onto a trade just because you hope the tide will change. Be patient and learn to identify support and resistance to use successfully in managing your risk. Careful analysis will help you grade market conditions and integrate with signals that point to the best scenario for entering into positions at the most favorable time.