In Part 1, we went over such topics as price extremes, whole and half numbers, highs and lows, pivots, extensions, and Fibonacci retracements to further your knowledge of support and resistance. The best Forex training courses will give you insight into these concepts.
In Part 2, we’ll cover moving averages, clusters, trend channels, trading zones, and the balance point line, important aspects to support and resistance you should know. Your Forex strategy will benefit from concepts like the idea of support and resistance complementing each other and performing vital duties that the other requires.
We used our decades of experience in trading to come up with the balance point line to help you make trades. It is sylistically akin to the moving average, but contains a few subtle differences. It will take a certain interval of time and show you the price averages of each order. You can determine just how much time it will measure. Typically, the settings are defaulted to both 3 hours and one day for the time intervals; since the balance point line looks at how volatile the price may be in its activity, it’s very different from the moving average.
The moving average, on the other hand, just looks at how the prices average out over a certain period of time, whether it be minutes or days. You’ll see the line it indicates on the chart you have to look at. Certain mathematical formulas are used to figure out weighted, simple and exponential moving averages.
You can use moving averages and balance point lines to figure out support and resistance factors, but they are types of filters as well. You can learn more about filters in upcoming literature.
Traders can draw out the trend channels on your charts; they are basically trend lines with quadrants added to them. Trend channels typically possess 4 zones, and the support and resistance lie in the top and bottom lines that you find on the chart.
Trading Zones as another proprietary item you can use. You’ll have the expertise of a Top Gun analyst to show you places that you should either avoid or take advantage of. What types of places are these? Clusters are the names of these places as part of support and resistance.
If support and resistance areas overlap, they form clusters. One example of a cluster (and a Trading Zone) is an area that fits into a monthly R1 pivot, a Fibonacci extension, and a 20 period daily moving average, especially if they lied no more than 10 pips apart from the others. The market will reverse or stall in this area, or at least it most likely will.
Several Forex trading methods rely on the phrase, “once broken, support becomes resistance and resistance becomes support,” and it can help your efforts. If the market experiences upward movement and gets to a resistance area, especially more than once, it’ll break that resistance area and your profits will skyrocket! The ebb and flow of this particular market can lead the movement of the area to move up even more than you previously indicated, bouncing a bit from end to end. These cases show the resistance providing support for these trends, which you should take advantage of to your fullest potential.
You now know about trend channels, clusters, Trading Zones, moving averages, and the balance point line. You also can find out how to turn resistance to support and vice versa.
You can learn more about how to apply these concepts to real trading areas that approach support and resistance in another article. You can start using it yourself to great benefit.
Don’t take this article to be providing you with specific guidance for your Forex strategy. The only purpose is to show you other ways to alter your style of trading.
By: Chris Donnell