| Support and resistance are two of the most | | | | other hand, is extremely subjective. The problem |
| important elements to successfully trading the forex | | | | with basing your support and resistance on the |
| market. The fact is currency pairs often gravitate to | | | | Fibonacci sequence is determining where to start and |
| very specific levels in the forex market. These levels | | | | stop the retracement levels. No one has a good |
| are known as support and resistance, both of which | | | | answer for this, and every trader seems to use a |
| can help you determine when to enter new trades | | | | different method, so it ends up being a very |
| and even exit existing positions. | | | | subjective technique. |
| Currency pairs trade to specific levels for many | | | | One of the best, and by far most accurate, ways to |
| reasons. Businesses, such as importers and exporters, | | | | determine support and resistance levels in the forex |
| use the currency market to hedge risks. They will | | | | market is by using point and figure charts. These |
| often buy and sell currency pairs at specific price | | | | charts are constructed with a set of rules, using X's |
| levels in order to lock in their risk management. | | | | and O's to draw the charts. Unlike traditional bar or |
| Speculators, such as individual forex traders, hedge | | | | candlestick charts, point and figure charts are very |
| funds, and commercial banks, try to pinpoint the | | | | precise in defining specific levels. |
| natural levels to which currency pairs often trade. | | | | The trouble with bar and candlestick charts is that |
| Even central banks, especially those who often | | | | you have to use some subjectivity when drawing |
| intervene in the forex market, will buy and sell at | | | | your support and resistance levels. The biggest |
| specific levels. | | | | problem stems with these charts is in knowing when |
| The key is to accurately identify where these levels | | | | a support or resistance level is broken. Traders run |
| are and how to determine if they are broken. The | | | | into trouble when a currency pair moves slightly |
| breaking of support or resistance is what triggers a | | | | above or below a specific level and are left |
| trade, so naturally an accurate reading on these levels | | | | wondering whether or not this level was broken. |
| is extremely important. | | | | Point and figure charts provide a solution to the |
| There are many different techniques for determining | | | | subjectivity that often clouds bar and candlestick |
| support and resistance levels. Some of the more | | | | charts. Point and figure charts accurately define |
| popular in the forex market include pivot points, | | | | support and resistance levels with a rules-based |
| ranging from hourly to monthly, and Fibonacci analysis. | | | | approach to constructing the charts. It doesn't |
| I'm a big fan of pivot points because they are | | | | matter if you're trading very short-term or very |
| precise: there's no subjectivity involved when | | | | long-term charts, the rules are same. |
| calculating pivot points. Fibonacci analysis, on the | | | | |