There are 6 rules which can be used to draw effective support and resistance lines:. Rule 1. Support and resistance lines are zones, not specific points.

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Expect prices to reverse in this general area; do not expect prices to turn about instantly. These areas of resistance can easily range up to pips in size. Thus a line drawn off a 4 hour chart would have more significance than one based off of a 15 minute chart. Rule 2. Wait for confirmation of a price reversal before jumping head first into a trade. Just because you setup an area where price is likely to reverse does not mean.

Instead, wait for a signal that price is reversing and then enter your position. It is critical to have some form of indicator or confirming signal to let you know price is indeed retreating from the resistance area. A few basic ones are covered only in this section.

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Rule 3. Instead of mentally noting where an area of resistance is, use a thick solid line that can be found in almost any Forex charting package. Play with the positioning of the line and choose the position that visually fits the Forex chart best. Applying Support and Resistance Concentrate on fitting the line to the curves and tops of trends. Play around with your Forex charting package. Sometimes a particular chart in style offers too much information. Rule 4. Identify support AND resistance areas. Find areas that not only exhibit support or resistance but ones that act as both a support and a resistance zone.

Look for areas that have shown both supporting and resisting characteristics over a period of time. These will be the best lines as they show strength on both sides and because of this, reinforce the validity of the line. Rule 5.

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The best support and resistance areas have been around for a long time. Like a good wine, support and resistance zones only get better, or in this case stronger, with age. This proves specifically useful when a currency pair approaches an area it has not traded near for a long time. In addition to that, support and resistance lines are stronger on longer time frames.

Applying Support and Resistance Rule 6. These rules are intended to help you find significant support and resistance zones, but by no means are they the only rules that you should or could use. Play around with different Forex charts and different time frames and see what you find most useful and most productive. Create rules that are simple and easy for you to follow. This way you can continue to apply them later on in your Forex trading career as well as easily adapt them if you come up with different ideas.

You don't want anything distracting your eye when you're looking for the most important support and resistance levels on a chart, you want the clearest and 'purest' view of the chart you can get. Just remember: A clear chart with only price bars candlesticks is going to give you the best view of the market and the key levels you need to find and draw on it. The weekly chart is what I consider the best place to start in learning to draw in support and resistance levels, because it provides you with the clearest view of the most significant long-term key levels you need to have on your charts.

For example, I am going to take you through how I would draw in the support and resistance levels on the same market GBPJPY , starting from the weekly view. You will notice in the example below, I have zoomed out a good distance on the weekly chart about 2 years and placed horizontal lines at what are the clearest and most obvious price points or areas in the market where priced changed direction. After you've identified and drawn in the key long-term levels on the weekly chart time frame, it's time to drop down to what I consider the most important time frame; the daily chart. At this point, you are now looking for any obvious key levels that weren't clearly visible on the weekly chart and that you may have over-looked.

These near-term levels are more likely to come into play than the further out key levels, so they are important to identify and draw in. Notice on the daily chart, I've drawn in a new level at Also notice I've adjusted the key support and resistance levels that we drew on the weekly up or down slightly.

This is totally fine and you will find that as you view weekly levels on a daily chart you sometimes will see a reason to adjust them slightly as I did in the example. The 4 hour and 1 hour charts are going to be mostly for 'review' purposes. Meaning you will review where the key weekly daily and any daily near-term levels are at, because these levels are very important on the intraday time frames.

Most of the time, I am focusing on daily chart levels as I look at the 4 hour or 1 hour time frames, rarely do I find myself believing I need to draw in any further levels on these intraday charts. But, on occasion, there will be a level or two you want to draw in, more likely on the 4 hour than 1 hour. STEP 5 The difference between 'key levels' and 'near-term levels'! You will notice in step 3 and 4, I labeled some of the daily chart levels 'near-term levels'. These differ from the 'key levels' primarily because they aren't obvious on the weekly chart and they are closer or 'nearer' to the current market price.

A key chart level will typically be obvious on a weekly chart and a large or significant move will have occurred from it, either up or down. Key levels are the most important levels to watch for signals at and to look to trade from, but near-term levels are important as well. There are obviously some subtleties involved with drawing in support and resistance levels, and this. You will need to use some discretion, and you will improve at determining which levels are 'key' and which are 'near-term' through training, time and experience.

One question that many traders ask is "how far back should I draw my levels? It's a valid question, and one that is easily answered by simply looking at the example charts. Notice on the weekly chart I went back about two to three years, and on the daily about six months to one year, the 4 hour and 1 hour will typically be about 3 months of data or less. Keep in mind, these are only estimates, but. I believe that generally speaking, the further back in time you go the less relevant the levels become, so I put more focus on levels over the last 3 to 6 months than over the last 1 to 2 years for example.

I sometimes see traders with charts so full of lines that it looks like a 3 year old scribbled all over it. You don't need to draw in every single little level you see on your charts, you only need to focus on the key levels and the most obvious near-term levels, as I showed you in the examples above. Generally speaking, less is more in trading and that applies to levels as well. If you draw in too many support and resistance levels, you will begin over- analysing the market, confusing yourself and getting 'analysis paralysis'.

STEP 8 You won't always be able to draw the lines exactly at highs or lows! Remember that you don't always need to draw the line perfectly touching the highs or lows of each bar, nor will you be able to in many cases. Your lines can and often should intersect the body or middle of the tails of some of the price bars they connect. At the end of the day, you need to use your discretion to determine where the most logical place to draw the level is. It might mean you hit a couple bar highs exactly and a couple are intersected through the candle's body; this is OK.

Another key point to remember about support and resistance, is that they often are not 'exact' levels. Often, you will want to draw in more of a 'zone' of support or resistance, you can think of these as 'value' areas on a chart; where price preferred to trade recently and consolidated or stayed at for some time. Price channels are a trading concept that is borrowed from the traditional trend line concept.

Instead of plotting a simple trend line, the price channels comprise of two trend lines, upper and lower trend lines. Trade signals are taken when price breaks out of the upper or lower trend lines or the price channel. It is worth mentioning however that price channels trading requires quite a bit of practice and analyzing the market structure.

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There are many different forms of channels that can be used. The most common price channel tools are:. Channel Trading in Forex allows a better perspective of the market structure compared to merely trading with trend lines.

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Long and short positions are initiated at the top and bottom ends of the channels,depending on the slope of the channel itself. Alternatively, traders can also be initiated when the channel is broken and successfully retested for support or resistance.

1. Introduction and Foreword

Channels are nothing support and resistance levels plotted in a slope. The chart on the next page explains this in detail. Notice how the swing points shows a confluence with past horizontal support and resistance levels. This offers a good sell opportunity with target booked at the previous support level. Within the same chart, we also notice how breaks out of the channel only to drop a bit further down to take support from the upper end of the channel. This is a classic channel break out pattern, where a retest of the channel takes place before a new uptrend is established.

This chart gives another example of how the channel break out pattern plays out with a retest of the channel before resuming the uptrend. It is probably best to trade break outs from channels rather than trading within the channel. To trade the Channel break out, the following criteria is used.