Support and Resistance Levels for Daytraders
It might sound surprising but support and resistance are the most important parameter in Forex Trading regardless of trading style and strategy. This level gives us the potential entry point to enter into a trade. As a Day trader you must know how to draw perfect support and resistance(S/R). These are the potential two areas which tell us the market next move.
Three possible scenarios of price action in S/R level
- A minor or major retrace in the trend
- Trend Change
- Ranging market
Three cardinal rules for drawing support and resistance zone
- Price must reject a certain level at least twice
- A Higher number of rejections results in stronger support and resistance area.
- Recent swing high, swing low and rejections are preferred while drawing the S/R level
Facts about support and resistance levels:
Basically support area helps the market to climb up while resistance area restricts the upward momentum of a market. Significant support and resistance level are not broken easily.
Figure: Support and Resistance zone
Strong economic news release or other high impact economic activities are required in order to overcome these significant levels. Day traders usually try find buying opportunity in support area and look for selling opportunity in the resistance area.
Sometimes the S/R level will be broken and cause the prevailing trend to change. That’s why all profession trader use price action trading strategy to determine the validity of support and resistance level.