An essential element of your forex trading education is using valid support and resistance to time your trading signal. Here we are going to walk you through a live example of how to use it properly.
The currency we are going to look at on our forex charts is the Japanese yen.
If you look at the yen daily chart, you will see a very valid resistance level at the 108.00 level and since March of this year there have been numerous tests of it, over 20 and yet the dollar has failed to close above it supported by momentum.
This resistance is very valid because there have been so many tests. Resistance or support gain validity
– the more times they are tested and hold
– The more different time frames and the wider apart they are
– The traders who trade the market and the news sees the level as significant
Watch the level then confirm the Trade
The way to trade it is to wait for the rise but DON’T sell until you see momentum turn down and two great indicators for timing your trade are the stochastic and the Relative Strength Index. Simply wait for the level to be tested and wait for them to turn down.
Never just assume a level will hold, wait for confirmation via momentum indicators
Once this occurs you can be short and you know when you’re wrong – if prices close above resistance.
This simple method of trading into valid resistance or support works and providing you time your entry correctly with momentum indicators, it can make a lot of money.
We have used this simple strategy to clear thousands of pips profits, this year and we have kept it simple, nothing complicated about it but it doesn’t mean it simple strategies can’t make money they can.
While resistance holds you keep doing it sell into the level and take profits when the dollar becomes oversold, then wait for the next test.
Follow Reality of Price Change
If the price breaks up and closes strongly above resistance, the odds will favour further strength in the dollar.
Simple and Effective
Sure it’s simple but it can be very profitable and the above is a good example of a low risk, high reward way of trading into valid resistance.
You don’t need to do anything else, than trade the reality of price change on the charts and if you do and you confirm your moves this simple forex trading strategy can make a lot of money.
This article was written on the 2nd Of August, good luck and good trading.