Description: We take a closer look at the concept of support and resistance in FX trading, and how it affects you as a trader.
If you have spent a reasonable amount of time in FX trading communities, you will have heard many traders mention the words support and resistance. Every trader should be able to understand fully what support and resistance means at any point in time. The trouble however, is that when some traders mention these words, they don’t actually know what it means.
For many traders, they feel that the best way to plot support and resistance points is to use an indicator that will magically put it on their chart. One question you should ask yourself is how these indicators will be able to know where the true support and resistance lies. The reality is that there is no way for them to know.
Why you should not use indicators to figure out support and resistance
An indicator is only a product of certain mathematical calculations and so its functions are limited. The indicator only makes use of a generic formula and it is this formula that appears on the charts you are looking at. Regardless of what you may have read elsewhere, an indicator will only come close but it can never be as accurate as your eyes.
Have you considered why most of the support and resistance tools give off different readings with various brokers? This explains what we are trying to say.
This FX trading market is one that is constantly in motion. There is no way you can use a static formula for a market that is continually moving. If it was this easy to figure out key support and resistance areas, the number of losing traders won’t be as high as it is today.
To figure out where support and resistance is located on your charts, you need to dig a little deeper. The reality is that you can do it by just looking at a naked price chart. It doesn’t matter what instruments you are looking at. The natural price movements will give you an idea of where support and resistance lies, hence the future direction of the market.
Here is an example. Consider a scenario where you are watching price movement on a particular pair and after hours of back and forth movement, price suddenly goes north or south depending on where you are looking. Now what do you feel the winners and losers would be doing at that point in time?
The losing traders will know they are on the wrong side of the market and will look to get out as quickly as possible while the winning traders will be happy with their position and even scouting for ways to add to their current positions.
This is how support and resistance zones appear in the FX trading market. They are nothing but areas where the market participants decided to get off a trend or to jump into a trend. It could take a while but it is only a matter of time before you learn how to pick out these levels.
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