What is Support and Resistance in Forex Trading

WHAT IS SUPPORT AND RESISTANCE?

Support and Resistance are horizontal lines, which mark an area of price in which price has previously been rejected at. Price usually repeats what it has done in the past; this is strongly known within the foreign exchange market. The term “history repeats itself” outlines the above.

We use the Monthly, Weekly and Daily timeframes to mark our support and resistance. The higher the timeframe, the more significant the area is.

Below is an image of a Downtrend using Support and Resistance

As you can see from the image above, as the market is moving in a downwards direction putting in lower highs and lower lows, it uses support and resistance as levels to be rejected at.

A support level is where you could see Bullish Price Action, and at a resistance level is where you could find Bearish Price Action to show continuation of the downside move.

Below is an image of an Uptrend using Support and Resistance

As you can see from the image above, as the market is moving in an upwards direction putting in higher highs and higher lows, it uses support and resistance as levels to be rejected at.

A Resistance level is where you could see Bearish Price Action, and at a support level is where you could see Bullish Price Action to show continuation of the upside move.

HOW DO I DRAW MY SUPPORT AND RESISTANCE?

To draw our Support and Resistance lines we use the LINE CHART on the Monthly, Weekly and Daily charts.

As stated previously, the higher the time frame the more significant the level.

Below is a step by step of how to draw Support and Resistance lines

Firstly we will show you how to select the horizontal line tool on Trading View:

Now you know how to select the horizontal line tool on trading view, we are going to plot our monthly, support and resistance.

To plot your monthly support and resistance lines, you are looking for the horizontal areas that have the most significant rejections or bounces.

Below is the monthly chart of EUR/GBP:

As you can see we have marked on our support and resistance levels.

we have also highlighted the points of rejection to indicate to you why we have selected each level.

As you can see we have marked on our support and resistance levels.

We have also highlighted the points of rejection to indicate to you why we have selected each level.

Below is the candle stick version of the above EUR/GBP monthly chart

As you can see from the areas we have marked using the line chart, they align with the candle chart. You are able to use either depending what you are more comfortable with. We recommend starting with the line chart.

Now we change down a timeframe to the weekly.

We leave the monthly support and resistance in place and mark our significant weekly levels. When changing down a timeframe this can also allow you to slightly adjust your monthly levels, if you can see it needs to be adjusted to be closer to the area of previous rejection.

Below is our EUR/GBP weekly chart, with our weekly and monthly support and resistance

When marking our weekly support and resistance, we prefer to use a different colour of line so we know the difference.

As you can see from the areas we have marked on the monthly timeframe, they align on the weekly. We have marked out significant weekly areas of support and resistance in red. We have also highlighted the points of rejection to indicate why we selected each level.

If you would like to check or use the candle chart, that is not an issue, however we do recommend sticking to the line chart for your support and resistance. Now we change down a timeframe to the daily.

We leave the monthly and weekly, support and resistance in place and mark our significant daily levels if necessary.

When looking for daily support and resistance levels, you are looking around current price for any significant rejection points. Sometimes there may not be any daily levels, due to your monthly and weekly levels already covering all necessary areas.

Below is our EUR/GBP daily chart, with our monthly and weekly support and resistance

When marking our daily support and resistance, we prefer to use a different colour of line so we know the difference.

As you can see from the areas we have marked on the monthly and weekly timeframe, they align on the daily timeframe.

We have marked out significant daily areas of support and resistance in dashed orange.

We have also highlighted the points of rejection to indicate why we selected each level.

Now lets take a look at our candlestick chart with all our support and resistance levels marked on the chart

As you can see from the areas we have marked on the monthly, weekly and daily timeframes , they show nice clean price rejection areas.

This shows us that we have marked our support and resistance levels correctly, as we can see we have a nice clear view of our monthly, weekly and daily rejection points.

Always remember the higher the timeframe, the more significant the level of rejection is. This is why we use different coloured lines to mark our levels, so always remember what levels are which.

WHAT IS SUPPORT AND RESISTANCE TO REJECTION?

Support and Resistance Rejection is when price forms a reversal candlestick at a significant level. For price to reject a support level you would need to see a BULLISH REVERSAL CANDLESTICK FORM.

For price to reject a resistance level you would need to see a BEARISH REVERSAL CANDLESTICK FORM.

Below is examples of price rejecting resistance levels: (All examples taken from our above EUR/GBP chart)

NOW LETS TAKE A LOOK AT SUPPORT REJECTION

Below is examples of price rejecting support levels: (All examples taken from our above EUR/GBP chart)

ALWAYS REMEMBER WITHIN AN UPTREND YOU WANT TO BE BUYING FROM SUPPORT REJECTIONS!

AND WITHIN A DOWNTREND YOU WANT TO BE SELLING AT RESISTANCE REJECTIONS!    

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