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Support and Resistance Trading in Forex, Trend Lines in Forex and Trade Channels in Forex

Support and Resistance Trading in Forex, Trend Lines in Forex and Trade Channels in Forex

Support and Resistance Trading in ForexSupport levels in trading are when the prices have stopped falling, and resistance levels are when the prices have stopped rising. These support and resistance levels can be a useful tool for trading if you know how to bring them to your use.

The basics here are to buy near the support levels in the uptrend and sell near the resistance in the downtrend. Still not clear? Here we explain you how to trade using support and resistance levels based on two simple concepts: Bounce and Break

The Bounce Strategy

In this technique, you should buy or sell after a bounce. It means that you should wait for a bounce in the form of support or resistance and after that when the prices consolidate a bit you buy or sell. Instead of acting right at the bounce you must wait for the bounce to turn the odds in your favor. It is the best way to prevent instances when the price moves quite fast.

The Break Strategy

The world of trading is a bit complicated. It does not comprise of bounces only. There are breaks too, and you must know how to play along with them for profitable trading. There are two ways to pass through breaks in forex trading. These are:

  • The aggressive approach: It involves buying and selling whenever the prices pass through support or the resistance areas respectively, i.e., you enter trading near the support and exit just before the prices reach the resistance level.
  • The Conservative approach: In it, you do not give way to breaks instead hold on and let the breakout pass through. At times you might earn more profits.
  • To make profitable trading decisions; it is necessary to understand the support and resistance levels and the movement of price through them. Mastering these concepts might take some time, but when you do so, trading will become smooth sailing.

Trend Lines in Forex

Trend Lines in ForexTechnical analysis in forex trading can be done through trend lines. These provide information about the current trend and also hint about the recent changes. The trend lines also show the point of resistance and support for the price change. Besides, through these trend lines, one can even know the profitable entry and exit points and the best positioning.

Thus, trend lines provide quite valuable information related to trading if drawn correctly. However, most traders do not do so and present flawed market trends by trying to fit the lines to the market. Learning to draw the trend lines accurately can help you out in profitable trading.

Market Trends

Market trends can be divided into:

  • Uptrends: In uptrends, one draws the trend lines below the support areas called the valleys.
  • Downtrends: In downtrends, one constructs the trend lines above the resistance areas or the peaks.
  • Sideways: Sideways or the horizontal trends are when there is quite a minimal movement between the peaks and the valleys.

Drawing Trend Lines

As already mentioned, trend lines can be quite helpful in making profitable trading forecasts. For drawing a trend line, you need to connect two highest highs in a downtrend and two lowest lows in an uptrend.

Points to consider

  • There must be at least three highs and lows to determine the validity of a trend line.
  • The steeper your trend line is, the less reliable it will be as it is likely to break.
  • The more highest highs and the lowest lows a trend line contains, the stronger it becomes.
  • If the trend lines do not fit to the market, then possibly your trend is not valid.
  • Trend lines can be a simple but powerful tool to analyze the recent market trends and predict a trend reversal. Accurate placement and employing the correct construction rules for trend lines can help you in a profitable analysis.

Trade Channels in Forex

A channel is what you obtain when you plot two trend lines at the support and resistance levels. Traders use these channels or trading channels also known as price channels as trading signals for buying and selling. The point where price hits the upper trend line is the selling area and the point where the price hits the lower trend is termed to be the buying area.

You can obtain a pricing channel by drawing a line parallel to the downtrend or the uptrend at the same angle of inclination. In a price channel, the top and bottom areas depict support and resistance.

Types of Channels in Forex

In forex, there are the three trending channels that can be used for price analysis.

  • Ascending channel: This channel shows the bull trend.
  • Descending channel: This channel shows the bear trend.
  • Horizontal channel: It is drawn on trend lines with zero slope when the market is moving sideways.

Drawing the Channels

  • Ascending Channel: Ascending channel is drawn on an uptrend. In it, you draw a line parallel to the uptrend line and moved it up to touch the most recent peak.
  • Descending channel: Descending channel is drawn on a downtrend. In it, a line parallel to the downtrend is constructed and shifted to a position where it passes touching the vertex of the most recent valley.

Points to Consider

  • You must not try to fit the price to the trading channels.
  • The two lines of the channel should always be parallel.
  • The top area of a channel is said to be the sell zone.
  • The bottom area of the channel is the buy zone.

Pricing channels are the tools for technical analysis that aid in identifying the right places to buy and sell. These provide you with a better perspective of the market as compared to trend lines and can be used for effective trading decisions.

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