This strategy can be suitable for those who do not pay too much attention to the market, but tend to earn steady profit regardless of the price direction or the trading tools. Support and resistance levels are those who confirm a trend and need to be monitored by traders who use the technical analysis. These trend lines are elements of technical analysis, used in price determination.
- The support level is for the upward trend;
- The resistance level is for downward trend.
On Forex there are three categories of trend:
- The upward trend/”Bullish” – the price is growing.
- The downward trend/”Bearish” – the price is decreasing.
- The neutral trend/”Flat” – prices fall within a price.
Start from determining the trend:
In order to do this, you shall trace a line to unite the minimal previous prices (if the trend is bullish). If the trend is bearish, trace the line on local maxima.
Open the trade:
Trace the resistance line on prices’ maxima of downward trend. When the price will break the resistance, enter on Buy. When the market goes upward, trace the support line on minimal prices of Bullish trend. When the price will break the support, close the order.
Similarly, open a Sell order: trace a support line by minimal prices. When the price will break downward the support line, enter on market. If the price goes down, trace the resistance line on prices’ maxima of the Bearish trend. When the price will break the resistance line – close the position.
The Support and Resistance analysis is an important part of trends because it can help to make trading decisions and identify the trend’s direction.