Understanding Chart Patterns for Online Trading
Support and resistance levels are horizontal price levels that typically connect price bar highs to other price bar highs or lows to lows, forming horizontal levels on a price chart. Support and resistance levels can carve out trading ranges like we see in the chart below and they also can be seen in trending markets as a market retraces and leaves behind swing points.
Price will often respect these support and resistance levels, in other words, they tend to contain price movement, until of course price breaks through them. In the chart below, we see an example of support and resistance levels containing price within a trading range. A trading range is simply an area of price contained between parallel support and resistance levels like we see below price oscillates between the support and resistance levels in a trading range.
Types of Support and Resistance Levels
Note that in the chart below, price eventually broke up and out of the trading range, moving above the resistance level, then when it came back down and tested the old resistance level, it then held price and acted as support… The other primary way support binary options profit per trade resistance levels are created in a market, is from swing points in a trend.
In an uptrend, the old peaks will tend to act as support after price breaks up past them and then retraces back down to test them. In a downtrend, the opposite is true; the old troughs will tend to act as resistance after price breaks down through them and then retraces back up to test them.
When a price action entry signal forms at a key level of support or resistanceit can be a high-probability entry scenario. In the example chart below, we see a key level of resistance and a bearish fakey strategy that formed at it.
Since this fakey showed such aggressive reversal and a false-break of the key resistance, there was a high-probability that price would continue lower following the signal… The next example chart shows us how to trade price action from a support level in an uptrend.
Note that once we got a clear pin bar buy signal, actually two pin bar signals in this case, the uptrend was ready to resume and pushed significantly higher from the key support level. The next chart example show us how sometimes in trending markets a previous swing level will act as a new support or resistance level and provide trade by trend and by levels good level to focus our attention on for price action entry signals.
We can see that when price came back to retest that level the second time, it formed a nice pin bar entry signal to buy the market and re-enter the uptrend from a confluent level in the market.
Finally, the last chart we are looking at is an interesting one. Note the swing low that trade by trend and by levels in the down trend on the left side of the chart.
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You can see how this level stayed relevant months later, even after the trend changed from down to up. Aim to find the key daily chart levels, like we showed in the examples above, as these are the most important ones.
The Stages of a Forex Trend
A price trading strategysuch as a pin bar, fakey, or inside bar strategy has a significantly better chance of working out if it forms from a confluent level of support or resistance in a market. For more information on trading price action from support and resistance levels, click here.
Price Action Strategies.