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TradingCurrencyOnline.com Presents...
Forex Training: Probably The Most
Important Lesson Of All - by Michael A. Jones
Many
beginners start out their Forex training by
gradually building up a plethora of indicators with
charts obliterated with every signal imaginable. No
wonder such new traders often freeze with indecision
as one signal seems to contradict another.
There is
however a very simple indicator, that when fully
understood, forms the backbone of all future Forex
training and trading! What is it?
Before
revealing it, guard against a typical reaction such
as: "Is that it? I know all about that!"
This
indicator, due to its simplicity, is often
under-valued and insufficient time is spent by new
traders in their Forex training sessions really
getting to grips with it.
Probably The
Most Powerful Indicator Of All
Now, what is
it?
Support and
Resistance!
To state it
clearly, your Forex training will only start to
really move ahead when you fully understand the
impact that support and resistance have on market
action. Here is a key principle to understand:
Support
becomes resistance. Resistance becomes support.
Why is
understanding this so crucial?
Because the
thousands of traders in the global market place,
handling billions of dollars for the big
institutions, are constantly monitoring where price
has been before.
If price
reached a peak some days ago and has since retraced,
that level that was reached becomes a key level of
resistance. If you enter a trade anywhere near that
level, understand that it will take major buying
pressure to get price above that level.
Conversely,
if price fell to a deep low within the last week or
few days, for price to continue on down there is
going to have to be intense selling pressure to pass
that level which has now become support.
An
Interesting Market Behavior Pattern
But now here
is an interesting market behavior pattern you must
drill into your brain as part of your Forex
training:
Once price
does break through that key level of resistance, it
now becomes a level of support. If it is a key level
of resistance that is broken, once price has moved
on through by 20, 30 or 40 pips, it can become major
support. What does that mean for the trader?
It is often
possible to enter a trade at an optimal point by
simply waiting for price to come back to test that
strategic level that was broken.
So rather
than chasing price and hastily putting a trade in
once the market has started to move in a certain
direction, wait for price to pull back to that key
level that was broken. Put an entry order in at the
level and wait for price to pull you in to the
trade.
It may
continue in the direction for 5-10 pips putting you
in deficit but if you have done your research
properly and identified this as a key level using
other indicators such as Fibonacci or pivot levels,
you need not fear. Price will quickly pull back,
cover your dealing spread, and from there on you can
enjoy the satisfaction of seeing price move toward
your price target.
Time and
time and time again the market behaves in this
pattern. Exercising patience while you undergo your
Forex training, and looking out for this particular
market pattern can yield huge results.
Understanding support and resistance will give you
an unbelievable edge on understanding how the market
works. This in turn will help you enter and manage
your trades to a highly accurate degree with minimal
stops and reasonable, reachable targets.
Rather than
trying to hit the home run, by looking at the next
key level of support or resistance where price is
likely to stall, you can walk away with a reasonable
profit by setting your price target accordingly.
Look Under
Your Feet
Rather than
searching for some complicated, 'advanced' trading
system, why not concentrate on what is right under
your feet.
Get to grips
with support and resistance, learn to quickly
identify these levels once you open a chart, draw
lines where you can see major support and
resistance, especially on the higher time frames,
and everything else you learn during your Forex
training will fall into place.
About the
Author...
How do you
trade the non-farm payroll report? Read this:
http://www.vitalstop.com/Forex/Advisor/forex-strategy-non-farm-payroll.htm
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