What else is important, apart from Support & Resistance?

Another factor that comes into the trading equation is whether the pair or instrument you are looking at is in a trending phase or a consolidation phase.  You will see various percentages spoken about this; some say that currencies will trend only 30% of the time so we'll stick with that.  The actual numbers are irrelevant for S/R traders, because our aim is to make money whatever the chart is doing.

In fact, it is the ability to survive and make a profit during periods of consolidation that determines whether you will last as a trader, long term.  New traders who do not understand the concept of S/R are, as a rule, entering Long (Buying) when price is just about to meet Resistance or going Short (Selling) when price is just about to meet Support.  With the tight 10-15 pip stops that most use, it's no wonder that the continuous, rapid up-and-down movement typically seen at these significant points on any chart quickly eats away at their accounts.

Support & Resistance (S/R), on its own, can be a viable way of trading but the decision to go Long or Short  becomes much easier when you have found a solid way to identify the dominant trend.

Every chart has a trend that should be obvious but I have noticed a tendency for new traders to focus too much on the immediate price action, typically on 5- or 10-minute charts, without the benefit of zooming out to see the big picture. For them, every Green candle/bar is an invitation to go Long and, conversely, every Red candle/bar is an invitation to go Short.  Zooming out will give you at least the chance to spot whether you are trading against the dominant trend on your chart or with it.

In my experience, trades with the trend have a greater chance of success and the potential for a greater pip count.  If I do trade against the trend then my profit targets are much closer and my stops closer.  As a rule, I am a trend trader and rarely take trades which are trying to swim against the tide.

So, what is Support and Resistance?

When you are looking at a chart, Support and Resistance is simply a visual representation of Demand (Support) and Supply (Resistance).

In simple terms we can say that when there are more traders ready to buy an instrument (Long) than there are traders ready to sell (Short) we have an excess of Demand. When your chart registers a change in direction from down to up this is the point where that excess Demand creates the Support area.

Conversely, when price reaches a point where there are no more traders interested in buying we reach a situation where there is an over-supply in that instrument and price will start to fall. This excess of Supply creates the Resistance area.

At every stage of a move plotted on a chart you have traders all round the world trying to establish at what point price represents fair value. When the majority of the largest traders have reached a point where they reckon this has arrived you get one of the many periods of consolidation so common in any arena of trading.

Trading Support & Resistance

Welcome to my little corner of the BloggerSphere!

If you are interested in how to trade Forex (or other types of instruments) then maybe I can help.

Please don't ask me whether using a Moving Average, MACD or any other indicator will improve my results as I won't reply. I don't like them and it's a long time since I relied on them to tell me when to trade.

Nor will I offer trading signals. All I hope to do is educate you on the value of using Support and Resistance in your day-to-day activities. If you feel that adding additional indicators to your screen will help you, go ahead. All I will say is that you don't need them.

OK, let's get to it.