Support and Resistance Trading Strategy
When you begin your journey and take your first steps in online foreign exchange trading, one point you quickly come to realize is the prevalence of technical analysis and technical trading strategy. Whilst this may appear intimidating at first, with the correct foreign exchange broker, you can quickly come to understand these strategies and why they are so popular. One such reason is that they provide traders with key market insights which in many cases are proven correct.
The Fundamentals of Support and Resistance Strategy
Support and resistance are largely and loosely defined as follows: Support is the area at which the price should hold or stop falling, and resistance is the upper area within which prices will not exceed in a given market trend.
In technical analysis, support and resistance lines are plotted with angled lines known as trend lines. If a market struggles or reverses at a point twice in succession, a horizontal line is plotted. In an upward trending market, the higher and lows are both higher. The opposite is true of a downward trending market where both high and lows are lower. If you connect these highs and lows, extending your line to the right, you will clearly note the support and resistance zones.
When engaged in stock and forex trading, any reputable trading platform should provide you with a number of technical indicators which can assist with displaying these zones. Some of the best forex traders will regularly utilize these technical indicators to their trading advantage.
Types and Features of Support and Resistance
Support and resistance levels can be either minor or major. Hen forex currency trading online, you will soon come to recognize these levels and patterns which develop in order for them to establish.
-Minor Support and Resistance
Minor levels of support and resistance are levels which are anticipated to be broken. This means that in an upward trend, for example, the price stalls at a level slightly, before pushing upward through it without difficulty. This is a minor resistance level. Such levels are key to fundamental forex trading strategies within support and resistance zones. If the minor levels are easily broken, we can note that the current trend is still intact. If not, then this could be indicative of a new range forming.
-Major Support and Resistance
Major support levels are those levels which when previously broken, triggered a change in the trend from downward to upward, and vice versa. Once these major levels are breached, it is quite unlikely the market will bounce or fall back to these levels in the near future. Again, this may significantly impact your support and resistance trading strategy and other forex trading techniques you may have implemented.
-Trading Support and Resistance Zones
At the most basic level, support and resistance trading strategy is based around the core principles of buying near support levels when an upward trend has formed, and selling near levels of resistance when in a downward trend.
The most important things you should note about trading support and resistance zones as a forex strategy is to wait for confirmation of the support or the resistance area before trading. This means, if buying near a support level, wait for consolidation of this level to be certain. For added assurance, you should place a stop loss slightly below this support level. This is a function which every forex platform will be able to perform. Oppositely, if shorting near resistance levels, you should place a stop slightly above the resistance level.
Many traders may view this as the best forex trading strategy, short-term, for those with patience and strong will. A strong will is required as you should set a realistic goal as your exit price, and be prepared to stick to that price, particularly if your position reaches strong levels of support or resistance again.
A final key to successfully implementing a productive support and resistance trading strategy is to ensure you are using the best forex platform. You should be comfortable with the technical indicators available on the platform and know how to utilize them precisely to ensure maximum effectiveness.
Whilst there are many forex trading strategies out there, technical trading strategies, including support and resistance trading, are extremely prevalent in the sector. This is an indication of both their effectiveness and the level of respect which these strategies have received from top traders through proven results. Working with top forex brokers such as TradeFW is an ideal way to learn more about these methods and implement them to maximum effectiveness within your own trading.
■ Support and Resistance Strategy
The research has been documented by TradeFW, one of the most respected forex brokers in the industry. They are dedicated to providing the best possible trading and learning environment for both new and experienced forex traders.