How to use Support & Resistance

August 13 2021

If you want to trade forex or any financial markets, it helps to have a basic grasp of support and resistance levels. Take a look at the AUDUSD 10 pip point & figure chart below.

As I write, the AUDUSD is trading 0.7342/44. You can see 2 areas of resistance highlighted in green first at 0.7380. This has been a pivot point that has also provided support for attempts to take the AUDUSD higher. The next level to highlight is 0.7430 Resistance which has prevented further AUD appreciation and turned the market back to test support at 0.7330/0.7320.

We can see how this chart evolved if we break it down into 3 phases of price action.

Phase one shows how 0.7400 resistance held and put pressure on the AUD to break 0.7380 to test lower to 0.7330. However, this move was rejected by a return to 0.7380. This was followed by a higher low at 0.7360 before another attempt to break higher at 0.7400.

Phase two initially shows a successful break at 0.7400. The market then forms multiple areas of congestion resistance at 0.7420/30. At this stage, the downside was limited as 0.7380 provided support. However, a series of lower highs ultimately saw a break of 0.7380 to test the 0.7330 low. This was followed by a small corrective move back towards 0.7360.

In Phase Three, the correction at 0.7360 stalls and the price turns lower to briefly break 0.7330 to post a new low at 0.7320. However, this attempt lower is rejected, and the price immediately returns to 0.7380 resistance. 0.7380 is now capping the market and sent the AUDUSD lower.

What we can learn from these charts is that breakouts are seldom successful. The pursuit of breaks is risky and will likely lead to loss. It is probably better to try to learn to range trade and use support and resistance as your guide to positioning.

The trick to forex is recognition of a real break and learning how to react. True breaks of support and resistance usually follow patterns, if you need to know more contact me at support@8dragonstrade.com

You need the flexibility of mindset when faced with its imposter, the false break. You have to face the fact you may need to stop and reverse your position. Which requires strength of mind and belief in technique.

Support and resistance help your plays with entry points, profit takes, and stop losses.

You need to study your charts, in doing so areas of interest will start to become clearer.
Key areas in the AUD as I write are 0.7320/0.7300 support and 0.7400/0.7420 Resistance. However, 0.7380 and 0.7330 are additional points of interest for me.

My favourite plays come from failed breaks, as a failure at support nearly always means a return to resistance and vice versa. I seldom trade every day, however I look for opportunities to exploit particularly at areas of support and resistance.

Published by Neil Callard

Forex Trader and Educator. 30 years trading experience, of which 20 years was market making in major currencies in large international financial institutions.

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