Posted by forex at 5:44 AM
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1. Review the concept of momentum. Momentum is created by the volume behind a particular price moment. Most forex charts will allow you to chart momentum under the pricing chart. Professional forex traders trade momentum and not price.
2. Identify support and resistance levels. This is where breakouts occur. This is also where traders like to set 'stop loss' or 'take profit' orders.
3. Using your favorite forex trading software, chart out a 30 min, 1 day, 5 day and 1-month chart. Analyze the 1-month chart first. You will see natural levels created within the chart; that is, a place where the currency trades within a range just under or below a certain price. These are support and resistance levels. Support (bottom) and resistance (top) levels usually occur just before or after a whole number such as 19.0000 as opposed to 18.5000.
4. Depending on the time frame you prefer, note the support and resistance levels on your chart according to your analysis in step 3. The shorter the time frame, the more detail you will have about the direction of the trade. As momentum picks up in the shorter duration time frame, note the support or resistance levels in a longer time frame. Look for a breakout to occur in the shortest time frame first. As momentum builds, the breakout will occur at support and resistance levels in longer time periods.
5. Use your chart to pinpoint the next breakout given the trend and current support/resistance levels. Momentum levels act like a wave, and are key to determining the strength of the breakout and/or whether it will carry out to future time periods.