Trading support and resistance levels is the single best way to increase the number of profitable trades that you take. In the Forex market knowing where these key trading levels reside can make a drastic improvement in your overall trading performance as they represent key levels where price is more likely to reverse.
Below I’ll show you a simple technique for drawing and trading support and resistance levels.
Identifying major support and resistance lines
- Open the chart of a pair that you plan to trade, I like to draw my support and resistance lines on the ‘Daily’ chart
- Use the zoom out feature until you are only looking at the overall structure of the chart.
- Start drawing lines at the obvious swing highs and lows. When finished your chart will look similar to the image below.
- Expand your chart to it’s original size.
That was simple, right?
Now let’s review a simple trading strategy that you can use to trade support and resistance levels.
Trading Support and Resistance Levels
- Determine the directional bias of the pair that you are trading.
- In this example of GBPUSD the trend is down, so we are looking for support levels that turn to resistance levels.
- Identify a nearby support level.
- Look for price to go through and close below the support level.
- Next, wait for price to retest the support level, which now becomes resistance.
- At this point, you place a SELL order for the pair.
Take a look at my short trade where I explain how to draw major support and resistance levels and show an example of the trading strategy described above.