Isolating Support and Resistance Zones in Forex Markets

As Forex traders we want to be selling in zones where there are sufficient sell orders to overwhelm the buyers. These selling zones are known by most traders as areas of resistance. Conversely we want to be buyers in zones where there are numerous buy orders, enough to overwhelm any selling activity. These buy areas are known as zones of support.

As traders we want to be able to identify these areas in advance. One way to identify these areas is by observing the past price action. It stands to reason that if something happened before at a certain price zone there is a good chance it may happen again. The best way for a Forex trader to learn the subtleties of market behavior is to perform an after market analysis of the price action.

These market postmortems are incredibly instructive. There is no money on the line. The trader is relaxed and able to observe, think and learn. Make it a habit to review and trade the market in your mind with the benefit of hindsight. You will start to see patterns that repeat themselves over and over again. Your intuition will develop and become trustworthy.

Measure swings and compare with nearby swings. There are a number of ways to make these comparisons. If you are astute you will notice a mathematical relationship between almost every swing. The secrets of support and resistance are hidden in plain sight.

Some of these relationships are based on Fibonacci ratios and some are derived elsewhere. It's important to make a thorough investigation of these ratios to know the likely areas where support and resistance lie. Often we see price action reversing to within one to two tenths of a pip of these predetermined comparative price measurements.

Invariably market reversals occur when these comparative price measurements meet comparative time measurements. Learning how to isolate these areas of support and resistance along with timing techniques greatly improves your trading success.

These measurements occur on all time frames. It pays to be aware of what is happening in terms of time, price and pattern on all time frames. The dramatic collapse of the Swiss Franc in January 2015, had significant timing on the monthly and weekly time frames that should have alerted traders to be extremely cautious. In conjunction with a monthly price retracement target being met there was really little excuse to be caught long when the market fell through the floor.

Always look at the bigger picture before tuning in to the time frame that you like to trade, even if it is a small one such as five minutes. The techniques that work on large time frames also work on smaller time frames. Work from the higher time frames down to the smaller ones. This is not as much work as you would expect yet is extremely worthwhile.

Forex trading is highly technical but the skills are not hard to learn. If you can add, subtract, multiply, divide and understand the concept of ratios you are already well equipped to successfully learn what is required to isolate support and resistance and timing zones.

The road to Forex success is not likely to be found with with the “perfect” indicator. Instead it is with the discovery that the markets have time and price relationships with previous market moves.