Support and resistance levels are points in the market where the price has a high probability of reversing. Knowing where these levels form and the reason why they form. Can help you in predicting when the price is likely to reverse and start moving in the opposite direction.
Support and Resistance Levels
I always start drawing my support and resistance levels on the linechart. Because I think that I have more overview where the levels are exactly. Below you can see an example of a line chart and how I determine my support and resistance levels on this line chart.
Linechart Support And Resistance Levels
The Support and resistance levels get their name from what they’re expected to cause the market to do upon being reached. Support levels are supposed to support the market and stop it from moving lower. Whilst resistance levels are supposed to stop the market from moving higher. Thus causing it to resist higher prices. Because support and resistance levels cause the market to do different things. It means they always form either above or below the current market price.
Support levels always form BELOW the current market price. And are points where the market has a higher probability of reversing back to the upside.
Resistance Levels always form ABOVE the current market price and have a good chance of causing a reversal to the downside.
Now look at the example below. Now that I have changed the Linechart in the candlestickchart you see it all a bit better.
We know for sure that these levels are actually support and resistance levels. Because they all caused multiple reversals to take place. And we know that they are specifically resistance levels due to the way they are all found above the current market price.
Support and Resistance Levels
In combination with reading the candlesticks, understanding what a fake out is and how you can recognize it. If you understand what a retest is, and ofcourse good risk managment you can be successful with this strategy. I have outlined the above chart for you. Especially in the way I view the market and act on it. Take advantage of it and keep practicing to read the market perfectly. Just like you will do with a good book.
In the beginning of my trading career, I went through many ups and downs. What really helped me with especially not giving up were the many motivating forex quotes. It can give you just that little extra power or insight. Here is a summary of my favorite forex quotes. Enjoy it!
“You become fearful the moment you identify with fear. But once you begin seeing it as an impersonal changing phenomenon, you become free.” ― Yvan Byeajee.
“Reaching any goal in trading requires specific domain knowledge and technical skills. But then, after that, it’s all mindset management. Yet most people ignore that —they automatically think they have that last part all figured out, and it’s a mistake.” ― Yvan Byeajee
“Trading the markets is a totally self-centered activity. Nobody’s life gets better because you trade. Except your broker’s life.” ― Robert Rolih
“When you learn to let go of the need to be right, being wrong gradually lose its power to disturb you.” ― Yvan Byeajee
“Money is made by sitting, not trading.”
– Jesse Livermore
“That cotton trade was almost the deal breaker for me. It was at that point that I said, ‘Mr. Stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?’”
– Paul Tudor Jones
“When I get hurt in the market, I get the hell out. It doesn’t matter at all where the market is trading. I just get out, because I believe that once you’re hurt in the market, your decisions are going to be far less objective than they are when you’re doing well… If you stick around when the market is severely against you, sooner or later they are going to carry you out.”
– Randy McKay
“The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading… I know this will sound like a cliché, but the single most important reason that people lose money in the financial markets is that they don’t cut their losses short.”
– Victor Sperandeo
The goal of a successful trader is to make the best trades. Money is secondary.”
– Alexander Elder
“I’m always thinking about losing money as opposed to making money. Don’t focus on making money, focus on protecting what you have” – Paul Tudor Jones.
“If you personalize losses, you can’t trade.” – Bruce Kovner
“It’s critical for the crocodile to understand its prey and to know where to look for it and remain calm and patient until it arrives. As traders, we have to know what our trading edge looks like and where to look for it and then control ourselves enough to not over-trade before it arrives. “- Nial Fuller
“I learned early that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again. I’ve never forgotten that.” – Jesse Livermore
Want to know more about trading in forex or do you want to join the forex group?
Please contact me so that I can explain you much more about what we have to offer.
Also know is the “Pin Bar”. The hammer and Hanging man look exactly alike but have completely different meanings. That again depends on the earlier Price Action. Both have small, cute little bodies (green or red), long lower shadows and no or almost none upper shadow.
A Hammer is a reverse signal at the end of a downwards trend. IT’s called a Hammer since the markets “Hammers” from the bottom. When the price is going down a hammer well give the signal that the jar is almost empty, the bottom is within sight and the price well likely go up again (the jar needs to be filled). The lower shadow gives us the information that the Bears have tried to lower the price even more but the Bulls were simply to strong and lift up the price a little over the opening level again. Call it survival mode. We all tend to be much stronger as soon as our live is at danger.
Just to be careful, once you’ve spotted your Hammer, don’t rush in to placing your buying order. You will need more Bullish information to decide the market will go up again. Use the Hammer as a warning or signal of a potential upwards trend reversal.
How to recognize a Hammer in the Japanese candlestick reversal pattern? It’s pretty simple to be honest. The long shadow is twice or three times as long as the candlesticks body. There is no or almost no upper shadow. The real body is at the upper side of the trading range. The color doesn’t really matter. However, a green body tends to be a stronger confirmation.
Want to know more about candlesticks/forex or do you want to join the forex group? The forex group is mainly English! Please contact me so that I can explain to you much more about what we have to offer. And all your questions can be verbs.
Price Action Candlesticks The history of the Forex candlestick takes us back to Japan, pretty interesting right? Candlestick charts go back as long as 500 years from now. Used by Japenese traders to analyze the price on the rice market. Off course techniques have developed and evolved and candlestick was used by lots of other traders around the world. Now you know how and where the important candlestick was born.
Price Action Candlesticks
The western approval of the Japanese candlestick charts was just 25 years ago. Step by step it gained popularity in the trading community of the USA. It wasn’t as well known before because people thought it was hard and complex to master the Japanese candlestick technique.
Candlesticks are the most pure form of Price Action that give us a visible view what’s happening in the market. Signals at a candle chart are exactly the same as on a bar graph. However, candle charts tend to be more trustworthy and are more visual.
Candlestick pattern is a repetitive returning formation of the price that suggests future prices. They will canalize your thinking process of the market as well.
Patterns in this lesson show us how traders acted earlier and what were there believes in that moment at that specific time frame?
Normally candlestick traders talk in the “Candle slang”. Candlesticks form the basics of your thinking process and trading decisions.
Identify Candlestick Patterns
It’s important to point out that attempts to identify candlestick patterns without trend, Support and Resistance are completely useless. There are more than 50 candlestick patterns for Bullish and Bearish.
Some traders remember all the names. This is not necessary since every candle is telling a different and unique story that will give you new information to think about.
By observing charts it’s important to ask yourself questions that can be used to back up your recent opinion.
For example: Once the recent candle has a solid form, what does this mean for you? Does it confirm or go against your previous thoughts of the candlesticks?
How to become a professional trader? The difference between a professional Forex trader and an amateur is like a boxing match between an Olympic champion and your neighbor. A professional trader is able to predict the future better due to good strategies that he or she has developed. The professional trader knows everything about risk management and how to keep himself under control and never get emotions the better of him.
You’ve got to be strong psychologically to make more and more winning trades. You’re not always going to make winning trades, sometimes you will make a bad one. The art of the game is to minimize your loses and maximize your winnings. Sounds simple right? Keep on reading and you will learn how to do this.
“A trader who has never lost, is not a trader yet.” Aristotle.
It’s very important to read and be able to analyze the graphs really well. In the end, it is all about recognizing patterns that have occurred in the past and may well be happening in the future again. Remember the Forex market is always on the move.
Technical Analysis for Forex Trading
It’s like dating. You’ve got to get to know the other person really well to press the right buttons for him or her. In trading technical analysis of a certain pair is really important. Get to know the pair your trading to predict any movement in the future. Ask yourself questions as: What is the price at the moment? What was the price? What happened when the price was at this certain level? The answers on these questions will give you a possible outcome in the future. And so a possible right moment to make your trade.
You don’t think this is the only strategy right? Since there are a lot more strategies at use at the Forex market. For example Drawing trend lines, support and resistance lines, the candlesticks and the different indicators. Every trader uses its own way to analyze the market.
Fundamental Analysis for Trading in the Forex Market
Fundamental analysis is also called the old fashion way since it’s used by traders who mainly focus on economic news.
The idea of trading of the economic news is that the currency will follow the economic news. It is certainly important since it can change the prices but more than often the Forex market reacts in a different way as expected. Take
the Brexit as an example. This had a bad influence on the value of the GBP. But that doesn’t have to be the case all the time. You will see that traders who trust in fundamental analysis get confused when it goes the other way.
Swing Trading/Trend Trading
Swing trading is, the word gives it away a bit, trading on a swing. Simply, traders are looking for a pair with a predictable big swing ahead.
Swing traders are the hit and run kind of people. They make a trade, get a few percentages profit and close their trade. Most often swing traders are cautious traders. Like a leopard, they wait for the right moment to attack and give it their all when that slightly weak dear is running by.
The swing traders work with the Stop-lossthat protects you from big loses. More about Stop-loss later on.
How to Become a Professional Trader?
Strategy for a trend trader is pretty plain and simple: Make sure you’re there when it happens and stay as long as you can until the trend reveres. Thought of a trend trader is that the price will keep moving in a certain direction otherwise it wouldn’t be a trend right? If the price, unexpectedly moves the other way it’s not a trend and the trend trader gets out of the hot kitchen before he burns his fingers.
These particular trading styles can be very successful if you have the right patience and know where to go for the kill. Mostly you will go for the kill at a retracement point. I will explain this later on.
-Up Trend: If the trend goes up the Euro is worth more. -Down Trend: If the trend goes down the Euro will lose in value. -Sideways Trend: Prices move in a narrow range.
Day Trading and Scalping
A common style of trading is Day trading. Day Traders are traders who strive to make money on a daily base on the Forex market and make as little as 5 to 10 trades a day.
Day traders who refuse to hold on to their position for one night work with a real tight Stop-loss and hold on to their good positions. For example the EUR/USD pair is the ADHD kid of the class who can’t sit still and is the pair that moves the most. An average of 80 PIPs (More about PIPs in a few moments) a day. So these movements need to be the top focus for a day trader.
Scalping is a sort of day trading. Scalpers trade in a relatively short timeframe as five minutes. Every trade they make will be between 5-10 PIPs. Imagine going for a 10km walk. And every 10 meters you find yourself a dollar on the ground. You will finish your walk with a $1,000,- in hand. You see, a lot of small trades will end up being a big one. Scalping is for the thrill-seekers under us. It requires constant focus.
How to become a professional trader? Pick the strategy that fits you as a person. If you like to analyze and wait for the right moment don’t go scalping. Other way around. If you are that thrill-seeker, don’t go bore yourself with analysis. Start Scalping!
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