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Support and Resistance Trading Strategy

When you begin your journey and take your first steps in online foreign exchange trading, you quickly realize the prevalence of technical analysis and technical trading strategies. While this may seem intimidating at first, with the right foreign exchange broker, you can quickly understand these strategies and why they are so popular. One key reason is that they provide traders with important market insights that are often proven correct.

The Fundamentals of Support and Resistance Strategy

Support and resistance are generally defined as follows: support is the area where the price is expected to hold or stop falling, while resistance is the upper area that prices are unlikely to exceed within a given market trend.

In technical analysis, support and resistance lines are drawn using angled lines called trend lines. If a market struggles or reverses at a point twice in succession, a horizontal line is drawn. In an upward trending market, both highs and lows are higher. The opposite is true in a downward trending market, where both highs and lows are lower. By connecting these highs and lows and extending the line to the right, you can clearly identify the support and resistance zones.

When trading stocks and forex, any reputable trading platform should provide various technical indicators to help display these zones. Many successful forex traders regularly use these technical indicators to their advantage.

Types and Features of Support and Resistance

Support and resistance levels can be either minor or major. When trading forex currencies online, you will soon learn to recognize these levels and the patterns that develop as they form.

-Minor Support and Resistance

Minor levels of support and resistance are those expected to be broken. For example, in an upward trend, the price may stall briefly at a level before moving upward through it without difficulty. This is a minor resistance level. Such levels are important in fundamental forex trading strategies within support and resistance zones. If minor levels are easily broken, it indicates the current trend remains intact. If not, it could signal the formation of a new range.

-Major Support and Resistance

Major support levels are those that, when previously broken, triggered a trend change from downward to upward, or vice versa. Once these major levels are breached, it is unlikely the market will return to them in the near future. This can significantly impact your support and resistance trading strategy and other forex trading techniques you may use.

-Trading Support and Resistance Zones

At its most basic, a support and resistance trading strategy is based on the principle of buying near support levels during an upward trend and selling near resistance levels during a downward trend.

The most important thing to remember when trading support and resistance zones is to wait for confirmation of the level before entering a trade. For example, when buying near a support level, wait for consolidation to be sure. For added protection, place a stop loss slightly below the support level—this feature is available on every forex platform. Conversely, when shorting near resistance levels, place a stop loss slightly above the resistance level.

Many traders consider this the best short-term forex trading strategy for those with patience and discipline. Discipline is essential because you should set a realistic exit price and be prepared to stick to it, especially if your position approaches strong support or resistance levels again.

A final key to successfully implementing a support and resistance trading strategy is to use the best forex platform. You should be comfortable with the technical indicators it offers and know how to use them precisely to maximize effectiveness.

Conclusion

While many forex trading strategies exist, technical strategies—including support and resistance trading—are highly prevalent in the industry. This reflects both their effectiveness and the respect they have earned from top traders through proven results. Partnering with leading forex brokers like TradeFW is an ideal way to learn more about these methods and apply them effectively in your own trading.

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