Price action trading
Learning to trade support and resistance levels is the basics in forex trading. Whether you trade daily or weekly charts, it is in your best interest to understand the foundations of price action.
You can practice support and resistance trading on a demo account.
While desperately chasing profits, many forex traders are looking for the most accurate forex strategy based on indicators or robots. At the same time, these traders don’t make an effort to learn the basics in price action trading. We consider that a major flaw, and we want to show some important aspects of forex trading.
How to draw support and resistance
Support and resistance are levels that the market tends to respect over long periods. When the price is moving in a down trend and faces support, it may pullback or reverse. The same happens when price moves upward and faces resistance.
To correctly draw support and resistance on the chart, you need to scroll back and check the price history. If your levels are correct, you will notice that a current support level was a resistance level in the past and vice versa.
Trading at support
In our example, we show a EURUSD chart from June 2018 to October 2018. At this period, the pair is mostly moving in the range 1.1550 to 1.1730, which are our support and resistance levels. As shown, the price tends to respect those levels and bounces from the support 1.1550 in a number of cases.
The level 1.1630 can be seen as both support and resistance, which also makes it a strong level to which traders should pay attention. When trading at support, you will most likely want to buy the pair to profit on the upside move.
Trading at resistance
The resistance level 1.1730 was also a support level in some periods, which we have marked with blue circles. That makes this level even stronger as it is respected by both the bulls and the bears. When trading at resistance, you are looking to sell the pair and profit from the downward move.
Keep in mind that you cannot expect price to react on those same levels forever, and it will eventually break the support or resistance at some point in time. When it breaks the SR levels, the pair might enter a consolidation phase or continue the trend. As you know, forex trading is not an exact science, and you can always expect your decisions to be wrong sometimes.
For you as a trader, it is important to learn how to properly draw support and resistance levels before you jump into any live trading.