One of the hardest and trickiest aspects of the Forex trading methodology that I employ is that of drawing in support and resistance zones on my charts.
This is tricky because it is very much subjective. For example, if I take the same blank chart on two different days and draw in my support/resistance zones, I am likely not to draw in exactly the same zones – and other people might have even more variation. The idea is to not draw in the perfect line or zone, but rather, to draw in the zone that everybody else is most likely to draw in on their Forex charts. Thus, if everybody is looking at the same zone, then it is more likely that the market will react at that zone. So how do I go about marking in these zones on my charts?
To begin with, have a look at Figure 1.
This is the daily chart for the XAU/USD pair (the pair for gold). You will notice that the pair has been in a downtrend – but can you spot the support/resistance zones? These are areas that the market has reacted to on more than one occasion. Now, have a look at Figure 2.
I have drawn in some horizontal lines on Figure 2 to roughly mark in some hot points in the market.
As you can see, this seems to happen periodically in blocks. However, these lines are simply to thin and precise for market participants to react to, so we have to expand them a little and make them more into “zones”. I do this with the rectangle function in MT4. Now look at Figure 3. Now, I have my zones marked in and things become a whole lot clearer. So, if I get any price action signals reacting to these zones, I will take a trade – providing that a good risk reward ratio is available.
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