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    Surprising Facts and Learn forex: support & resistance - Most Popular Ways

    In the simplest form, a trend is defined as a direction in price. When price has declared a clear direction higher shown by higher highs and higher lows then you can simply look to buy at a favorable price and if the price continues higher, you will see a profit. 

    If the trend losses its direction and moves sideways, the market is said to be “trendless” or moving in a range.The way to identify whether a trend is progressing is if price is moving through prior highs also known as resistance. 

    If a trend is moving down, known as a downtrend, then price is consistently moving through the price floors known as support. Resistance is the opposite of support and in an uptrend when price moves near support but does not break that support, then you’re likely near a good place to buy.


    In the chart above, you may notice that AUDCAD spent time within support and resistance at the beginning of the year with resistance near 1.0700 and support near 1.0300 for a 400 pip range. In mid-April, AUDCAD fell through support all the way down to 0.9170 for a 1100 pip move in total. What you will notice that as the trend progressed downward, price would hit a low which would act as current support and then back off that low for small amount before breaking that level of support showing the trend was progressing with each break of support.

    Another way to use resistance or support in a strong trend is through a trend line. In a downtrend, you can simply connect the lower highs to create a trendline that will act as resistance and when that trendline is broken then you will notice that the trend has likely lost its steam and may be on its way to a reversal.


    Sadly, trends never move in a straight line. Instead, they oscillate or move up and down in a definitive direction and each new high is called a peak or resistance and a low is called a tough or support. As they move up and down, if the trend is strong enough, the peaks will get consecutively higher and price will continue to move higher than it had previously and thus, you have an uptrend.

    To understand the psychology behind a support level and see why it may carry into the future, it is helpful to look at your own experience. If you have every entered a trade, only to watch it decline in price and yearn to sell out at the price of your entry so as to not incur a loss then you have succumbed to the human emotions that show up on the chart to create support and resistance.

    There are many things that can create support and resistance but here are a few major reasons. First, prior highs or prior lows are often the first play that traders are hesitant to reenter a trade for fear that the rest of the market participants will not join them. Another irony of trading is that round numbers often scare off traders from pushing through. However, of equal importance is that when traders are no longer scared of the resistance points, trends often show a great deal of follow through and therefore opportunity.


    In my years of trading, I have yet to find a methodology of trading that I like more than trading breakouts. If you think of support and resistance as a battleground, it is often best to wait until the battle is over and one of the lines has been broken to see who won. A broken line of support or resistance is known as a breakout and can show you directional bias to help you see what side of the trade you likely want to be on. If the breakout is to the upside, then the buyers are driving prices higher and the sellers are running out of steam.


    One way to identify trend progression is through an older yet very effective tool known as the Donchian Channel. The Donchian Channel indicator is used to identify price breakouts above or below recent price history. The indicator plots recent high and low price boundaries and was made famous by the Turtle Traders during the 1980’s. Any time the current price breaks above or below that boundary a trading opportunity may exist because the Donchian Channel strategy has identified a breaking of resistance in an uptrend and therefore trend progression.


    As mentioned earlier, price never travels a perfectly straight line as those on the right side of the trade often take profits and those on the wrong side of the trade may add on to their trade. When this happens, a retracement takes place which if you’re not in the trade can offer you a great deal of opportunity. The important thing to note is that as a trend progresses, there are likely new players that treat support as holy ground which lead to the concept of a polarity point. This new level will often been honored and when prices trades near new support, you can see this as a low risk opportunity to enter with the trend.

    Whether you are just getting started in FOREX or you are a fairly experienced investor who is looking to take things to the next level, you will find that there are several tools you can use to make the process a little easier. We will not lie and tell you that these are easy concepts to figure out, and they still will not make you become a multi-millionaire overnight, but you are certainly better off to at least try and use these than you are to continue guessing where you think currency values will go. One really effective tool to help you analyze the market are what are known as support and resistance lines.

    Trend Line Basics

    Before we can go too in depth with the support and resistance lines found in the FOREX market, it is fairly important for you to have a basic understanding of trend lines because these are essentially the route version of support and resistance lines. With trend lines, you have an uptrend line and a downtrend line. With uptrend lines, you will have an inclined plane that defines the bottom, or corrective phase, of an increase in prices. With downtrend lines, you will have an incline plane that slopes downward from the peak of the uptrend plane, and this plane defines the top of the price increases when the overall prices are actually declining. There are two things used to define the whole price of both the bottomed-out prices and the highest prices, which are known as support and resistance lines.

    What are Support Lines?

    To make things as simple as possible, think of support lines as a floor that is built as steadily as possible. You might overthink things and realize that, under severe circumstances, your flow could, in fact, fall out and send you below the foundation of your home, but the actual occurrence is not likely. Like the foundation example, the support lines on a FOREX chart indicate where people realize prices could technically drop below, but the prices continue to stay above it. It essentially acts as a safety barrier.

    What are Resistance Lines?

    To make resistance lines easy to understand, think of them as the roof of your house. If something ever happened to gravity, all of the belongings in your home would go flying through the roof, and so would you. Fortunately, in the case of your home’s roof and your belongings, this is unlikely to happen. The same holds true when investors have speculated that a certain transaction is going to exceed a certain ratio, but the “roof,” or in this case, resistance line keeps it from happening. Support lines are typically drawn as a horizontal line, or plane, along the apex intersection of the uptrend and downtrend lines, while resistance lines are a horizontal line drawn along the bottom of the uptrend and downtrend lines.

    How to Use Both to Become a Better Trader

    Like most technical investing tools, you need to combine two pieces of analysis together to receive any benefit, and the same holds true when combining support lines with resistance lines. When you look at support lines, you can get an idea of where investors have an outside speculation prices may go, but you can clearly see that they are nearing the mark but never actually exceeding it. This can be used to show you that prices will likely never exceed a certain mark. You can use the data demonstrated by resistance lines to realize that, against most odds, prices will never drop below a certain level. 

    When you combine the two, you can get an idea of where the price floor is and know how high the price could potentially reach in a very realistic sense. The complete data will, in theory, tell you when the most opportune time to buy is, when prices will not go any lower, and when the best time to sell is, when prices likely will not go any higher; both according to data over a very specific period of time.

    While support and resistance lines can help you become a better trader, it will take you a while to do the necessary research to find the trends. You should not simply give up if you cannot figure out how to use these two concepts right away as they are a little tricky for even seasoned investors. Now that you know a little more about the support and resistance lines, hopefully you will have a leg up on the investors you are competing against in the FOREX market.

    Are you a relatively new trader looking for a solid forex strategy?

    A challenge facing many new traders when developing their forex strategy is the ability to identify the overall trend for intra-day trading.

    The 200 EMA (Exponential Moving Average) can solve the problem.

    The 200 EMA is one of the most popular indicators of all time with Forex traders the world over, and for that reason alone is worth noting due to the psychological effect on the market place price can have when hovering around the 200 EMA.

    Using The 200 EMA Strategy To use this very powerful Forex strategy, create charts on 3
    time frames:

    4 hour
    1 hour
    15 minute

    Now plot a 200 EMA indicator on each chart and, as a suggestion, color it red, for easy visual impact.
    Preferably tile the 3 windows containing your 3 charts into a vertical fashion so you can see the 3 time frames next to each other. It will squeeze up the information on the charts somewhat but for the purpose of this strategy that doesn't matter.

    Now scroll through the various currency pairs you like to trade. If you prefer to trade only pairs with a smaller pip spread, they amount to about 9.

    They are:

    • EUR/USD
    • GBP/USD
    • USD/CHF
    • USD/JPY
    • EUR/JPY
    • USD/CAD
    • AUD/USD
    • NZD/USD
    • EUR/CHF

    What you are looking for is any currency pair that bucks the 200 EMA on the 15 minute chart.
    So for example, look at the EUR/USD pair and note the position of price relative to the 200 EMA on the 3 time frames.

    If price is well above the 200 EMA on the 4 hour chart, well above the 200 EMA on the 1 hour chart, but BELOW the 200 EMA on the 15 minute chart, price is bucking the trend.
    The overall trend is up, price has temporarily gone against the trend and is currently in a retracement.

    Using the fundamental trading principle of "buy the dips in an uptrend", "sell the rallies in a downtrend", look for a suitable entry point. In the example given above you would look for an opportunity to buy the EUR/USD, perhaps watching for a candle signal that price has exhausted it's downward momentum, bucking the 15 minute chart 200 EMA and will soon resume it's upward

    This is an easy exercise and it can be done once or twice a day, taking just a few minutes. Watch For Price Bucking The Trend Once you see price bucking the 200 EMA on the 15 minute chart, whereas it is on the opposite side on the 4 hour and 1 hour charts, sit up and take note. Watch carefully and
    grab the opportunity to get in and make some pips. After a little practice you will see how extremely powerful this simple Forex strategy is - certainly deserving a place in your trading tool kit.

    When most people think about investments, they figure they will keep things as simple as possible by simply investing in common things, such as the stock market. This certainly can simplify things, but people should also realize that there is much more money to be made in markets, such as FOREX, that are a little more difficult to master a trading technique. With that being said, the FOREX market is something that people are going to need to do some serious research on because it is highly unlikely that they will know too many others trading in the market. People should also avoid making the FOREX market seem like a gamble where they are just making blind guesses about what will happen to the value of different currencies. One effective way to take the guess work out of FOREX trading is to learn about the benefits offered by trade lines.

    What are Trend Lines?

    To begin the process, it is important for you to know what the two types of trend lines are and what they are used to indicate. But, before we get too deep into the types of trend lines, you need to know what trend lines are defined as. Trend lines are designed to connect consecutive rising bottoms to one another, so in other words, you will define where the low point seems to reoccur, and you will draw a straight trend line that the bottom of the low points will never go below. Of course, the trend line is drawn on an incline, so even though the bottomed-out prices will never actually drop below the plane of the line, the “new” low may actually be a higher price than an older low.

    Ideally, you want to see a trend line go for as long of a period as time as possible as this helps to separate a mere coincidence in price from an actual trend that goes on for an extensive period of time. By doing so, you will feel much more confident about deciding when to buy new currency or sell the current ones you have.

    For the actual types of trend lines, you will be dealing with uptrend and downtrend lines. With uptrend lines, the line will be drawn up and to the right, which looks like the forward slash you would use on your keyboard to access a specific page on a website, such as www.example.com/example. The uptrend, as the name might imply to you, demonstrates rising prices and that the demand has ousted the supply. The downtrend, which is a mirrored image of the uptrend line demonstrates a decrease in prices and that the supply has ousted the demand.

    How to Draw the Trend Lines

    Drawing trends lines is actually a fairly simple concept, but you will need to do some research. To draw an upper trend line, you will need to start with the forward slash-like line (/), and it should connect the bottom of two consecutive low points. For the downtrend line (\), you will need to draw the plane and have it connecting two consecutive highs. Now, you might be wondering why both sides seem to say the same thing, and we will explain that shortly.

    How to Use the Trend Line Data

    When it comes to using trend line data to actually help you become a better buyer and seller in the FOREX market, you will ideally want to create three, different charts. The first chart should be a daily chart that identifies both up and downtrends for a time period of one to three years. The second chart should be an hourly chart that shows both up and down trends over a time frame of one to three months. The third, and final, chart should still include both up and down trends, and it should be based on 15-minute intervals that expand over the last one to three weeks. The interesting thing about the three charts is that they will give you different data over a different time frame, but you will be surprised at the fact that the charts will look eerily similar in most cases. This is because of the fact that even during major booms and the worst of recessions, the prices will typically reset themselves after a given amount of time.

    It would be a complete lie to tell you that the FOREX market is something that anyone can dive right into and become an overnight success. However, with the use of the right tools, such as trend lines and by having a little patience, you will definitely be able to trade with much more confidence. Hopefully, this gives you a little better explanation on trend lines for you to work with.

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