How to search for levels on Forex
Understanding how to search for levels on Forex is an invariable attribute of successful trading. After all, the levels are part of most strategies, suggesting points of entry to the market.
The most popular levels in the Forex exchange market are levels of resistance and support. The technical analysis is held with their help, taking decisions about transactions’ opening, determined the size of protective orders and the profit is calculated.
- Why it is important to know how to search for levels
- Characteristic of resistance/support levels
- Searching for strong levels
Why it is important to know how to search for levels
On the price chart there are clusters of prices. They can be easily found without any additional tools. They are extremes: hollows and highs. Reaching such places, the price often can not overcome them and unfolds.
It takes place for two reasons:
- market participants’ out of the depth to move price further,
- a part of traders close their orders.
Therefore, the price does not have the right power to move on and turns in the opposite direction. For clarity, traders conduct a horizontal line called the level in the places where prices are concentrated. The line that is located above the price is called resistance, which is under the price-support.
Characteristic of resistance/support levels
The level of resistance does not let the price go further, not letting it grow. And level of resistance prevents from falling. Any level can be either resistance or support.
Levels are carried out by the maximum zones of price accumulation. With ascending trend support is drawn on the hollows and resistance by the highs.
Levels of resistance/support in the market do not allow the price to move further, forcing it to turn around. That is why it is important to know how to search for levels on Forex.
However, the rebound from the level does not happen always. Situation, when price overcomes the level is called a breakout. It is useful to know when true breakout will occur. In this case, the price does not hold anything and it rushes forward with terrible speed. The ability to determine correctly the moment of breakout of level helps to get a good profit. Usually the level is considered to be breakout when the price will form two or more candles, passing through it. Otherwise, the breakout is considered to be false.
There are different levels in the market, including strong and weak. The price bounces off from the strong ones and, passes over, punch the weak. That is why it is important to find those levels that the price can not break at once.
To search for those levels you should look carefully at the extremes. Those, which are clearly visible, stand out on the chart distinctly, the price is not able to overcome easily.
Searching for strong levels
In addition, the level becomes stronger if it is visible on the older time-frame. The older the time-frame is, the more important and stronger is the level and it is seen by more traders on Forex. How to find stronger and more important levels? It is possible to use one more rule: with every price’s rebound it becomes stronger. It is seen and takes into account more and more traders, raising the importance. Therefore, experts advise using only those levels in work from which the price rebounded no more than 4-5 times.
Additional technical tools give strength to levels. If, for example, Fibonacci netting’ level passes in the same place, it will make in much more important: it will be seen by much more traders and it means that the price will bounce off from it more likely.
During the market analysis it should be noted that the level is coined by traders and everyone conducts it according to their knowledge and skills. That is why, exposing the order for rebound, it is necessary to take into account a margin. Understanding, how to search for levels on Forex helps to understand better market’s behavior, making trading more successful and profitable.