How to identify support and resistance lines in forex ? 1



 
Good day to all,

welcome to another Koala Forex Education article!

If you want to make money in forex, knowing how to identify potential support and resistance lines is essential. Many times, trends were stalled or reversed upon reaching a major support or resistance line.

However, having the right mindset is important. Find below a few points you must note.

  • Support and resistance lines or S/R lines for short are usually sentimental in nature. Therefore it is not 100% predicable. Never reply on them alone
  • S/R lines are never a single pip. Due to it’s sentimental nature, it is usually a region
  • There is no way to know if a trend will reverse, stall or continue on upon reaching a S/R line

You may often discover that S/R lines corresponding to other technical lines like Fibonacci Lines. This is because S/R lines are indeed sentimental in nature! Investors following Fibonacci Lines plan their trades based on those lines and in effect that become self fulfilling S/R lines.

There are 101 ways to identify S/R lines. Today, i will show you how i do mine. Not based on technical indicators, not by counting candles and definitely not via a crystal ball. I simply analyze the chart and lookout for price levels with significant interactions.

For example, if you follow my EUR/USD reviews on a daily basis, you know that 1.3660 is a line i identified.

On your right, find the EUR/USD Weekly chart from February 2010 to April 2010. Notice how the price reacts in the region of 1.3660? During February and next in April.

The numerous interactions around 1.3660 show that there are probably sentimental interests in that region and hence the currency pair may interact with the region potentially each time it crosses path. As i believe the support and resistance lines are never a single pip, getting the exact line is not too much of a concern to me. I usually plot the center of the region in question.

Well i am a risk adverse koala and i usually don’t base my S/R lines with only recent data. I usually zoom out to a number of years back. Find to your right, the EUR/USD Weekly chart for April 2007 to Sep 2007. Once again we see similar interactions at the region of 1.3660. This additional confirmation is the reason how this line earned a special place in my charts.

Besides the weekly, i use the daily charts too. I usually do not go below that as apparent S/R lines on short time frames may sometime be simply periods of low volume. A point to note is due to the nature of the S/R lines, old lines may cease to exist or new lines may appear. Hence there is no short cut! Constant monitoring is a must.

Now that you know how can you identify support and resistance lines in forex the koala way, i urge you to fire up your chart and give it a try!

Trade safely!

Learn why support and resistance lines are never a single pip.
 

In the meanwhile do check out our forex forum where you can find discussions of popular topics such as the EUR/USD.

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  • aman

    Nice thanks