In this today’s article am going to show you guys how I draw my supports and resistances on my forex chart. I recommend every forex traders to take today’s lesson very serious in other to learn and have a good idea on how to draw support and resistance like a professional on a forex chart. I compare trading the forex market without this knowledge of support and resistance similar to going to a battle front without the proper knowledge on how to load a gun.
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What is Support and Resistance?
In forex trading, we all know that the price of currencies do not move in a straight line but rather in a zigzag pattern which can be seen more clearly when using a candle stick, bar chart or line chart
NOTE that in this article I will use S/R to denote support and resistance in other to short the length of the word.
SUPPORT can be defined as the lowest point or level reached on the chart before price goes up again. And;
RESISTANCE can also be defined as the highest point or level reached on the chart before price goes down again.
From the picture below, the red lines indicate the support levels while the green lines shows resistance level.
When the price trend downward and later reverse upward, that point (level) is considered as a support. Because it is believed that, at that level or point, the sellers (bears) became exhausted and the buyers (bull) took control. The same logic applies to resistance level too –buyers (bulls) became weak and started selling off and the price changed from upward to a downward trend.
There are lots of misconceptions about drawing support and resistance level but this will be treated later in another article but let me give an example of such misconceptions.
- The lines must touch all the highs and lows.
- The support or resistance cannot be broken (when a support get broken, it turns to a resistance).
- Support and resistance are more of level than zone
Those are just some of the misconceptions which some traders have about using S/R. But in this article, I will walk you through how to draw support and resistance level like a professional.
How to draw support and resistance like a professional?
There are basically two ways to draw these lines which are:
- Using the line chart
- Using the candle stick chart
But I am going to introduce you to an entirely new approach of doing this. This is the method I personally use for my charting, though there is no particular name which I call this method we will use stick with the name “drawing support and resistance like a professional”.
I will classify these procedures into steps for clarification purposes.
Choose a currency pair that you wish to draw the support and resistance line on. Also note that you can draw the support and resistance on stocks, index and commodities too. But it work best on currencies because of the frequent ups and downs in the market.
You should change the charting formation from the default bar chart or candle stick chart (which ever may be the default one for your platform) to a line chart. Changing the chart of your terminal is very easy if you are using the famous MetaTrade 4 or 5 you can do so by find the icon as seen from the picture below (the red circle).
Now that the chart is in line format, draw horizontal lines at the tops (resistance) and bottoms (support) example of a line chart blow.
NOTE – you mustn’t draw a horizontal line on very top or bottom
When you are done with drawing the S/R lines switch back to the candle stick chart and do some readjustment. If you ever switch from the candle stick chart to the line chart rapidly you will notice that the wick (a wick is a line that is projected from the top or bottom of the body of a candle stick) on the candle stick doesn’t reflect on the candle tick. That’s why in step 4 we will do basic amendments.
Let me summarize these steps again so that you won’t miss any details.
Once you get the currency pair or commodity you wish to draw the S/R lines on, switch the default chart to a line chart. This is to make it easy for you to spot the individual support and resistance and join them together by a horizontal line.
Once you are done, switch back to a candle stick chart and be adjusting the lines to give you a perfect support and resistance.
You must not draw the line so that every wick on the candle stick should touch the horizontal line. This is one of the mistake traders make, price mustn’t hit the support or resistance before it reverses most times price reverses before it even get to the support or resistance line like in the picture below.
Also, support and be broken and the same apply to a resistance. Once a support is broken it immediately turns to a resistance because price would have to have to break from that level again in other to retain the feature of the level. Let me explain further, a support is known to hold price from moving further down and a resistance is also known to hold price from moving further up and when this level is broken. Let’s say a support is broken, it immediately turns to a resistance until it gets broken again.
These levels aren’t just a single piece of line drawn on the chart but are to be considered as a zone. There are several cases where a level might be broken only for price to retrace back. That is, the level either being a support or resistance has held up price.
I would love to hear your comments about the lesson. Feel free to ask any question.