How do we build support and resistance in Forex trading?

Forex traders must be aware that support and resistance are the basis of technical analysis and the two primary price levels where a sufficient number of buyers and sellers can reverse the price or turn the trend movement into a fixed range. Support and resistance can appear in two ways: as horizontal structures and as trend lines of dynamic structures.

How do we build support and resistance in Forex trading?

In this section, we will focus on horizontal structures. Horizontal support and resistance lines are built on extremes that can be used to identify reversal prices or to indicate a flat range. Horizontal lines are formed above the asset prices on the price chart, while support lines are formed below the asset prices on the price chart.

Price Chart A successful broken resistance structure has a greater possibility of turning into new support for the price. Likewise, a successfully broken support structure has a greater possibility of turning into a new resistance for the price. How can we build support and resistance on a price chart?

Step 1: Determine your trading methodology as a scalping trader

A day trader begins by marking the horizontal lines on the 4-hour chart, while a swing trader begins by marking the horizontal lines on the weekly chart. The swing trader starts as a position by marking the horizontal lines on the weekly chart. Monthly chart.

In this tutorial, I will mark support and resistance lines. Let’s use the EUR/USD daily chart as a day trader on the intraday frame.

Step 2: Zoom out your price chart

Zoom out your price chart and focus on the 1-year historical price range. Sign up on your trading chart as a day trader.

Step 3: Identify the highest peak that has a downward swing rejection

Do it to the bottom side where your resistance continues down, and repeatedly apply the horizontal lines at each bearish price rejection to the bottom of the previous higher high. On the right side is another potential resistance level for future prices.

Then, the swing high low here is a potential support level. The next is the previous swing high low. Here is the resistance price above the current market price.

Step 4: Build support lines below the market price point

Once you reach the current price point, the market price point starts building support lines below the market price point, locate the next swing low on the price chart, and build one support line.

This is the support level below the current market price level in this downtrend. Repeat the step to create another support line as well. Here comes another potential support. Repeat the steps to create more support lines on the price chart to the bottom. Next, toggle Plot your price to the 4-hour chart to check how the lines match the prices.

Sometimes, you may need clarification and start considering whether your horizontal line fits the correct swings or highs and lows on the price chart. To solve this problem as a beginner, use the rectangular box tool to mark your resistance and support level on the price chart.

Resistance at the top in a Forex chart

Check the daily chart for the EUR/USD price chart again again. The resistance at the top is quite a good resistance, and it may be a challenge for you as a beginner to identify the critical levels in trading. To resolve this doubt, use the rectangular-shaped tool to determine the highs on the left side of the chart. The price extends to the highest levels of the candlesticks on the right side. Next, let’s apply the rectangular tool to the support below the current market price in this downtrend.

The resistance above can also be identified by using the Rectangular Tool to capture the lower shadow of the bullish reversal bar on this swing low on the left side, then extend the Rectangular Tool to the right side to capture the swing low on the right side of the price chart.

Note that support and resistance should be treated as a point where the price can hold or break out of this point and, therefore, should not be treated as a sacred gray area for buying or selling in the market. The more confluence factors are available at the support or resistance level, the greater the probability.

Summary

From the high level that attracts more traders in this market, there is still more to apply support and resistance lines in technical analysis, and this is just the basic knowledge of how to start as a beginner in the Forex market. In this article, we explained how to trade. We hope that this article is excellent and helpful for you. Remember to tell us your query in the comments.