Posted by forex at 12:19 AM
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1. Go to ForexTradingCharts.com, which is free, and select the Forex Charts. Then select a currency pair on the next tab and look at the graph that is pulled up.
2. Start scanning the price action of the forex pair you have selected keep in mind the following guideline for spotting areas of support. Take note of any prior lows that marked a sharp rally as these areas will form support if the price should decline again and retest the area. It's also important to notice if these prior lows occurred at the same time as a huge spike in volume. This is usually a sign that a surge in selling took place but couldn't drive down the currency pair's price at this level, making it an area of major support.
3. Mark down and take note if any prior high was marked by a sharp decline as these areas will form resistance if the price should rally again and retest the prior high. If it is also marked by a huge surge in volume, then it could indicate major resistance at this price level because buying had exhausted itself, which shows there was not a high enough demand to push its price beyond this level.
4. Prepare to enter the trade when the forex currency pairs approach a support or resistance level. Observe price reaction that causes the direction of the price action to reverse in the other direction. Once you see that reaction after spotting a retest of the prior high/low and once it is made, watch for the following price bar to close above the high of the lowest bar on support or close below the low of the highest high of the price bar that retests resistance. Enter the trade on that close and set your stock on the previous price bar's low for a trade off of support and, for resistance, also enter on the corresponding close while setting your stop above the high of the previous bar's high.