How to Trade Support & Resistance Key Levels In Forex

Forex Maestros

In recent times I have had many questions regarding support & resistance as this seems to pose great challenges to beginning and professional traders. Making highly effective trades using support & resistance key levels has been one puzzle so many traders wish to solve.

In reality, resistance and Support levels act like Hills and Valleys. Resistance is hill while support is valley. During an upward journey of price, each time price falls down from a hill into a valley; it would try to rise back to another hill level. It will continue this pattern until it has no more strength to climb up another hill.

These Hills and Valleys are essentially key levels that the institutional traders also use. So your ability to determine these key levels ahead of time will increase your success rate geometrically.

These key levels help you to:

  • Have a timely, low-risk entry
  • Set a stop point (take-profit, stop-loss, trailing stop points)

Therefore, it is vital to learn how to read key levels so you can have a timely entry, a perfectly guarded stop, and relatively low risk per trade.

In this article, I will highlight one of the many tips for finding these key support and resistance levels.

  1. Using EMA10 (Exponential Moving Average, period 10) method. A resistance forms (the previous high) when price closes below the Moving Average (or comes close to it).

Your best entry might be when price arises from the support form (this gives best risk-reward).

See example below for a long position on EURGBP daily chart:

Looking at the chart above, we see price falling from the first resistance level down below the Moving Average (MA) to form the support level. Actually, it is easier to locate the support first, before going back to find the resistance. We can also observe that, each time it falls, it gains another rising strength. Thus, a smart entry point would be the close of the first candle after the MA line.

Stop-loss would be placed at the lowest point of support.

Profit could be taken in two ways; target the previous resistance level for every new entry, or keep adjusting stop-loss to next new support level.

Manage the trade as long as you are within your risk percentage band; you can enter a total of six trades at each new entry point (for this example) with a result of 3,559 PIPS!

Another example below of a short position on AUDUSD H4 chart:

In this example of downtrend, the resistance level forms when the price pulls upward and cuts up into the Moving Average. It is easier to first locate this height; then looking backwards, you select the support level preceding it. Sell entry is a candle pushing down the Moving Average.

The ideal stop-loss would be every former resistance, while take-profit could be former support, or by re-adjusting the stop-loss to every new resistance level.

Trading key levels is not some difficult code that needs to be cracked. If you can explore the method explained above, your ability to find these levels will be enhanced greatly. Though it requires skills, experience and precision to achieve success using support and resistance, it is not an entirely unfruitful approach, as it places you at the same vantage point with institutional traders.