How to draw support and resistance… one of the most frequently asked question amongst newer traders, and one that we believe isn’t answered correctly.
Support and resistance to the FX Guys is a systematic identification of different market structures and not simply where the market rejects price to the upside or downside. In fact, one of our strategies is based purely on the buying and selling of breaks of specific market structures.
When looking at how to draw support and resistance, it’s far better to think of them as zones of interest. Whilst the zones are capped in price or ranging, you don’t really want to trade them. What you want to do is wait for zonal breaks, a return to the zone, and then a buy or sell on return to the zone. There are various other ways to trade support and resistance, but for now, we’ll stick with this method
It’s much better if we show you what we mean with an actual chart.
Note the red section. This zone has rejected many times previously. We therefore consider this zone to have order interest due to it previously acting as support and then resistance.
Context is key. What you are seeing here is something known as a rounded retest (the first test of a zone where price turns from support/resistance to resistance/support) and then continued interest at the rounded retest level. You can see this occurring at various accumulation zones.
Look for breaks and pullbacks to sideways zones (orange zones) with a return to previous flat key price interest (the red zone)
