Support and Resistance are two common terms which are highly used in Forex Market. If you are into forex market since quite some time now, you must have seen these words around you. Many of the forex marketer are using these terms daily and believe me, if you can get your basis done, you will get good advantage in trading using support and resistance. Today, I am here to show you how to find support and resistance in day trading.
As support and resistance are quite useful terms in forex trading, there are chances that new forex traders might not know these terms and even they might not be knowing how to make trading decisions based on support and resistance
Let me show you what is support and resistance in forex trading first…
How To Find Support And Resistance In Day Trading
Small Introduction to Support and Resistance in Forex Trading
Let’s see the above diagram to understand support and resistance in easy and better way. As you see, the zigzag pattern is going upwards in the diagram.
When forex market goes up and then comes down, the highest point reached before going down is known as resistance. Similarly, when the forex market goes up again, the lowest point before it started back is called support.
Many people believe that when price tends to stop falling, it is support and when price tends to stop rising, it is resistance. You might even meet people who are taking trading decision based on the above thought and end up losing money
You need to draw a chart based on support and resistance. On the basis of your chart, you can decide your strategy. Before you start drawing your chart for yourself, let me clear 2 myths about support and resistance chart.
Myth 1: Draw Each and Every Level You Can Find
This is the first biggest myth in support and resistance chart. You might fall easily in this myth. Many new trader believes that, they should draw each and every level of support and resistance in a single chart. This is not recommended at all.
You cannot easily identify things if you draw each and every level in a single chart. You should draw only significant levels in your chart. It will help you to take your action quick and right.
Myth 2: Support & Resistance Levels should be drawn across High or Low of Price Bars
The second biggest myth while drawing support and resistance chart is this one. Many traders believe that support and resistance can found only on highest and lowest level of price point but this is completely wrong belief. Just remember one thing here: Support and Resistance is not an exact numbers.
You should not only looking for high or low points to draw your chart when you try to draw chart for yourself. You should first completely understand how to draw chart of Support and Resistance and then get started with it.
So you should first understand how to find support and resistance in day trading to get good benefits of support and resistance.
Let me show you 5 ways here to find support and resistance in day trading in forex market.
5 Ways to Find Support and Resistance in Day Trading
#1. Check out How Obvious Your Chart Is
The first and easiest way to find support and resistance in day trading is to check how obvious your chart is. Your chart should be easy to understand. Don’t draw chart which is having too much complexity.
You may try to show your chart to any non-technical person and you may ask how many ups and downs are there in chart. If non-technical person can understand it easily then you may go ahead with your chart otherwise, it is recommended that you change your chart and make it easier to understand.
So the first step is to check complexity and pick the upper and lower levels from chart to get started with trading.
#2. Check past History of Price on this Level
You should always check past history of price on different levels which you decide. There are many forex traders out there who keep checking historical data to predict new price in the forex market.
If price has reacted to support and resistance levels in the past then you will get a good clue this level is having importance in trading. Once you have some good clue, you can go ahead and decide your strategy as per that only.
#3. Check Your Trading Time frame
Each and every chart you draw in the forex should have some timeframe associated with it.Without proper timeframe, your chart is incomplete and you cannot use it anywhere while trading.
There will be rules in each trading strategy and your chart and its support and resistance should be relevant to your rules of trading system.
If you are trading daily then your support and resistance analysis should have daily timeframe while in case of monthly trading, your support and resistance analysis should include monthly timeframe only.
If you are not sure about your trading strategy then first make one solid trading strategy for yourself before you start with the support and resistance charts.
#4. Combine Price Action and Support & Resistance
The fourth best advice on how to find support and resistance in forex market is to combine your price action strategy with your support and resistance strategy.
I guess you are having question on how to combine them in trading right? So let me answer that here:
If support and resistance both are very far from each other than your price will not hit that level after 6 months or a year. So there is no importance of support and resistance lines which indicate that much timeframe. You cannot make any profit out of them.
You should always consider plotting those lines on chart where your price action will hit your support and resistance. It can be in 2 weeks, 1 week, 1 day or even within an hour. If you do it properly, you can make some good profit out of it for sure.
#5. Consider Support and Resistance Zones
While finding support and resistance levels, you should also consider support and resistance zone. Don’t confuse here. Let me tell you what is support and resistance zone?
In forex, price will not hit exactly what you have drawn in your support and resistance chart. It will come near to that and again bounces back. So you won’t have exact predication about price from your chart but price will always up and down in some specific zone. That zone is known as support and resistance zone in forex trading.
You should consider that zone while plotting your chart because there will be very less chances that your predication will happen correctly. So to go ahead with your trading strategy, always consider zone.
Final Words on How to Find Support and Resistance in Day Trading
Forex marketing is highly unstable but at times, with proper strategy you can do anything in forex. As a beginner, always consider the above 5 points while drawing your support and resistance chart.
Always draw your chart for support and resistance zones as it will help more when price hits various points in your zone. Make sure your chart is easy to understand and implement.
What are your thoughts on making a chart for support and resistance? Do share in the comment box.