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How to trade the key support and resistance level in the forex market.
Support and resistance level are considered to be the most important element in the forex market. To be precise you will need support and resistance level in every single financial instrument in the world. These levels are so important because price tends to respect these levels significant and most of the time they reverse its direction. In the eyes of trained professional trading, the key support and resistance level in the market is the most profitable trading strategy in the world. To be honest every single strategy that you will find in the market is based on the support and resistance level.
Support level: A support level is such a place which helps the price to move in the upward direction. Or in other words when a price hit a specific level in the market and after hitting that level it starts to rally strongly in that case that specific level is considered to be the support level. Professional traders use the key support level to execute their long (buy) orders in the market.
Resistance level: A resistance level is such an area which restricts the bullish move of the price. For instance, if the price of a certain commodity is rising sharply in the market but after hitting a specific level its starts to fall. So that specific level is the resistance level of that certain financial assets.
Almost every traders in the financial industry use the support and resistance level in the market. They also use a number of other different parameters before they execute any trade in the market. To be precise they become overly cautious when the price hit a specific support or resistance level in the market since they know these are the sweet spot for trading.
Spotting the key resistance and support level: There are major and minor support levels in the market. Major support is the most significant levels in the market and most of the professional traders use them in their trading.
Key support and resistance level demonstration
Figure: Key support and resistance level
In the above figure, the key support and resistance level has been clearly demonstrated. Professional traders use these level to execute their buy and sell entry in the market. In order to identify the key support and resistance level, you need to understand the highs and lows in the market.
The highest and the lowest traded price for a definite period time is considered the highs and lows of the market. In order to draw a key support or resistance level, you need to have a minimum of two highs or lows. When you connect the two high with the horizontal line then the line act as a strong resistance and it restricts the bullish movement in the market. And when we connect the two lows in the market it becomes the strong support levels for the market. Always remember that the more connecting highs and lows you will get the stronger the support and resistance level will be.
So how do execute a trade by using the key support and resistance level?
There are mainly two methods of trading the key support and resistance level in the market. You can either enter short at the resistance level or you can also wait for other trading parameters. The aggressive traders directly execute their short order at the key resistance level. On the contrary, the conservative traders wait patiently for bearish price action signal near the key resistance level to execute their short orders in the market.
Trading the support level is very much similar to resistance level trading. Aggressive traders simply execute their buy orders at the support level whereas the conservative traders wait patiently for a bullish price action confirmation signal.
There are many traders who use lots of different indicators other than price action confirmation signal for buying the support and selling the resistance. The most popular indicator for this purpose is the Stochastic, RSI and MACD indicators. Though this three indicator is extremely useful but traders should be well aware that all of them are leading indicators which mean signals are generated without any prior confirmations.
The best way to trade the key support and resistance level in the market is by using the price action confirmation signal. Most of the professional traders in the financial industry use price action confirmation signal in the market to trade the key support and resistance level in the market. Trading the key support and resistance level with price action confirmation signal is extremely profitable and reliable. As a professional trader, you must know the different candlestick formation and their significance to trade the important levels in the market.
It’s true that trading the key support and resistance level with price action confirmation signal is extremely reliable and profitable but you should be also aware of the fact that no support and resistance level in the market is absolute. So don’t expect to make a profit from every signal trade that you execute by using this method.
No matter which system you follow proper risk money management factor is a must. In the eyes expert proper risk management factor is one of the key ingredient that every trader need to have in order to become profitable. So always make sure that you are executing your trade with strict money management policy. Make sure that you know your potential loss in the market and you are also comfortable with the amount. And most importantly never trade with the money that you can’t afford to lose.
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