How to trade forex by Support and Resistance LevelsDoes a
There is major/strong and minor/weak resistance and support level. Major or strong level is the one that will have a higher impact on the price when the price reaches this level. Minor or weak levels will have lower impact on the price movement.Major Level
Major or strong level will impact on the price in a way that it will change price movement for a longer period of time or bounce with a larger pip amount.Larger period of time is not a rule and it does not need to be in this case because price can be pushed from resistance or support line for large amounts of pips in a short period of time.
This often happens when there are several indicators showing that prices have reached strong resistance or support level.
But sometimes it can happen that the price bounces from strong resistance or support level and it takes a lot of time to move.
Minor Level
On the minor or weak resistance level price can bounce a small pip amount but it can happen to bounce a lot. This cannot be calculated and each trader should have risk management when trading bounce from resistance line.Uptrend and Downtrend
Resistance or Support level is developed when price stalls on the same price level for two or more times. When this happens we draw a resistance or support line as a horizontal line. This line represents a level where the market has a problem and it is struggling to move past that area.
If the price makes higher highs, which indicates we are in uptrend we can draw an angled line which connects those highs. This angled line is a resistance line and we read it as an uptrend line. Angled lines are called dynamic support and dynamic resistance area.
When the market moves in downtrend and makes lower lows we draw a support line that connects those lows. Support line is drawn as an angled line and we read it as an downtrend line.
Resistance or support level should not be remembered as a line but as an area, price range. It cannot be a line because the market will not hit a specific price always but it will come close to that price level or it will pass that price level and then bounce.
All traders should have in mind to place their orders and stop loss/take profit in the area around support/resistance level to get the best result.
Deeper Understanding of Support and Resistance Levels in Forex
When support and resistance level is tested by the price that level becomes stronger or weaker. Which one becomes you will not know until it happens in breaking out or bouncing back. So, mark those areas and watch how it behaves when the price hit that level. Wait for some sign of confirmation in case of breakout or retest to confirm setup.Testing Resistance Level in Forex
When the trend is going up, the uptrend, watch does market makes higher lows next to resistance level.If lows are coming closer to the resistance line it means that the resistance level is tested and the market will probably break and resistance level will not hold.
Resistance level becomes weak because there are more buyers than sellers. Have in mind that there is no rule that resistance will break and price will continue to rise up. It can happen that the price breaks support level like in the scenario on the above image and price drops below support level and changes direction of the trend.
In another scenario the market will not make higher lows next to resistance level and it will bounce back. It will happen when it bounces back that it will not come to resistance level for a longer period because on that level there are large amounts of selling orders. This means the resistance level is strong and it will be hard to break out.
Testing Support Level in Forex
Same scenario is happening when the market is going down, downtrend. If lower highs come closer to support level it means the support line is tested and the market will probably break and support will not hold.
Support levels have become weak because there are more sellers than buyers.
In another scenario the market will not make lower highs next to support level and it will bounce back. It will happen when it bounces back that it will not come to support level for a longer period because on that level there are large amounts of buying orders. This means the support level is strong and it will be hard to break out.
Remember
Higher lows next to resistance level which is defined as an ascending triangle mostly result in a breakout but it is not mandatory that it will happen in that way.Lower highs next to the support level which is defined as a descending triangle mostly result in breakdown but it is not mandatory that it will happen in that way.