The support and Resistance Zones trading pattern allows traders to trade precisely at points where price reversal occur. It is essential to put support and resistance lines as part of your trading pattern ( trading idea ).
Support serves as a floor that inhibits any additional downward movement as illustrated in the diagram below:
Resistance behaves as a ceiling that prevents additional movement in the upward direction as shown below:
The position that previously serves as a resistance may serve as a support at other times. Also, the position that serves as a resistance in the past may change to a support in the future.
Indicators Used in the Support and Resistance Zone Pattern
The indicators used for trading with this Pattern are the price action and their relationship with Support and Resistance.
What is Support?
Support is the stage that is very difficult for the price to fall under until it finally rebounds in an upward direction. It implies that a lot of traders are making trade decision at this stage.
What is Resistance ?
Resistance is the stage that the price hardly moves above till it reverses and the price starts to move in a downward direction. Price always reverses at the support or resistance levels.
Steps involved in trading Support and Resistance Zones Pattern
The primary aim of trading with this pattern is to discover the support and resistance levels and apply it to your trade to enter trade and exit trades at suitable times. The steps involved are:
1. Draw the resistance and support levels on your chart
These levels enable you to easily identify the position where the price reversal may likely occur. While drawing the zones on the chart, try to do it on a larger time frame to allow you to readily estimate the key levels of reversal and the more significant points on the chart because a larger time frame helps you to see a better picture.
2. Identify support and resistance Zones
You need to wait for the price action to reach the Zone in order to set your charts on two to four currencies for instance, and wait for such opportunity because, it may take a while for the price to attain the support resistance levels. Choose a larger time frame to take less of your time and attention to discover.
3. Wait until the candle that touches the zone to close.
It is possible that the candle is the signal candle you are looking for. Try to figure out if it is a bullish or bearish candle; if it is a strong or weak candle; if it is large or small; and whether it has long wicks, small wicks or doesn’t contain any wick. Discovering the type of candle helps you to decide if you can sell short or buy long.
4. Decide your entry position
After analyzing the candle, the next thing you do is to determine your trade entry position.
Trend Trading in Forex ( Trading with an uptrend or downtrend )
Trend trading is a forex trading pattern that tries to make profits by analyzing forex movement in a specific direction. Forex traders who trade with this pattern, enters into a long position when a currency price is moving in upward direction. On the other hand, such traders take a short position when the currency moves in a downward direction.
Countertrend Trading in Forex ( Trading against the trend )
Countertrend trading pattern is a form of swing-trading pattern that presupposes that a present trading trend will rebuff. The trader tries to benefit from the turnaround. In countertrend forex trading pattern, the trader holds his position for many days or many weeks. Countertrend forex traders depend on graphs, indicators and oscillators like the relative strength index while making their trade decisions.
Countertrend trading can be utilized as a section of the diversification and risk-minimizing trading pattern.
Range-Bound Trading in Forex ( When price stays within a fixed zone )
Range-bound trading is a forex trading pattern where traders try to discover act on currencies that trades in price channels. When they have discovered the main support and resistance levels and connected them with horizontal trend lines, the trader can purchase a security at the lower trend line support which serves as the bottom of the channel. The trader also sells when the upper trend line resistance or the top of the channel is reached.
While trading with the range-bound strategies, you need to link up reaction highs and lows with horizontal trend lines and discover positions of support and resistance.
Forex traders make use of the range-bound trading to continuously buy at the support trend line and sell at the resistance trend line till the currency breaks away from a price channel.
Forex Trading School Educational Articles
All the information in the website is for educational purpose only. Your capital may be at risk. This material is not investment advice.