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TradingCurrencyOnline.com Presents...
Forex Day Trading:
Top 7 Checklist When Using Support
And Resistance - by Michael A. Jones
Why are
support and resistance levels crucial when
participating in the Forex day trading market?
Simply put,
they represent key, strategic price points at which
traders processed orders involving millions or even
billions of dollars. No wonder price at times has a
hard time getting past a previous high or low. Those
levels are being fiercely defended by traders who
have large amounts of money at stake and who do not
want to see price break those levels.
For this
reason anyone who engages in Forex day trading
should learn how to trade support and resistance.
The following checklist provides crucial guidelines:
1. Support
and resistance levels are much more significant on
the higher time frames. Pay particular attention to
price highs and lows on the daily chart as this time
frame is commonly used by big traders.
2. A price
high or low has more significance when it has a
number of candles either side of it which are lower
(in the case of a price high) or higher (in the case
of a price low).
3. Before
you consider Forex day trading at a support or
resistance level, see if there are more factors that
would indicate this is a key price level.
For example,
does a trendline intersect at the same point? Does
the support or resistance line match up with a
Fibonacci level, either a retracement or an
extension? Does the support or resistance level
coincide with a pivot point if you are in the
practice (and it's a wise one) of calculating pivot
levels when Forex day trading?
4. Has a key
support resistance level been broken? Then look to
see if price will come back to test that level.
Remember, resistance once broken can become support
in the future and support once broken can become
resistance in the future.
These Forex
day trading scenarios can present excellent trading
opportunities as you put an entry order in at the
key level and wait for price to come back and pull
you in. Within a short time your dealing spread is
covered and you are in profit.
5. The
market spends most of its time in trading ranges or
consolidation channels. You need to accept that this
is a characteristic of Forex day trading and adjust
your mindset accordingly. Identify the high and low
of the trading channel and manage your trades
accordingly.
6. After
identifying a trading channel or range and you see a
trading opportunity, set your entry level at the
base of the channel if you are going long or at the
top of the channel if you are going short.
Don't chase
after price once it breaks out of the channel
(although many who engage in Forex day trading do
so). You will not get the optimal entry point.
Waiting for price to take you in either at the top
or bottom of the channel means you can have a
smaller stop and your price target is closer.
7. Pay
particular attention to the previous day's high and
low. Price will often hesitate and retrace at these
levels. If you are a Forex day trading scalper, you
can often grab a nice pull back of 10 pips or more
at these strategic levels.
Note:
Although there are various ways to calculate the
previous 24 hour period depending on where you live,
using GMT as a standard is often beneficial.
Midnight GMT is a time when the market is generally
very quiet and unlikely to make new highs or lows.
Succeed Or
Fail?
It is
unlikely you will succeed at Forex day trading if
you fail to understand or take into consideration
support and resistance. This indicator is that
crucial! Yes there may be fancy indicators out there
with all the bells and whistles, but this simple
indicator, marking where price reached a high or low
during previous trading sessions, can be one of the
most powerful and effective Forex day trading tools
available.
Be sure you
spend sufficient time studying it, examining your
charts, marking off the key levels each time you
begin a new Forex day trading session.
About the
Author
Get a useful
free tip on how to use the MACD indicator for safe
trading here:
http://www.vitalstop.com/Forex/Advisor/forex-strategy-MACD-save-anxiety.htm
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