Support and Resistance Indicator Explained
Knowing the major support and resistance levels is very important in forex trading and the best way to do this is through the use of several support and resistance indicators.
Most of you have heard of major swing points as support and resistance and do not know anything about indicators that can provide you with the same information. Therefore in this article, I will be sharing with you some of the best support and resistance indicators that I have used and proven to be pretty powerful.
1) Fibonacci Indicator – I guess most of you have heard of Fibonacci indicator, it is a powerful tool that is able to help you predict where the market might retrace to and then revert back to its original trend.
The Fibonacci is made up of retracement and extension, the important retracement support and resistance levels are 0.382, 0.500 and 0.618 and you will usually find the market respecting them. As the forex market is moving in waves of retracement and extension, you can then make use of these levels to help you to enter a trade in the direction of the trend.
Another powerful feature of the Fibonacci is its ability to predict the likely extension and this information can be used to help you in your exit.
2) Forex Pivot Point – The pivot point is a tool that is commonly used by those big dog traders and thus it is a very reliable support and resistance level. Try plotting pivot point on your chart and you will see how many times the market get repelled by it or how many times the market move tremendously after breaking through it.
Personally, I always plot a daily point point on my 15 minutes charts. In fact, you can plot an hourly pivot or even weekly pivot depending on your preference. I often use the pivot points as entry and exit targets in my trading and you can also do the same thing.
3) Bollinger Bands Indicator – Other than the above 2 indicators, you can also make use of the Bollinger bands upper and lower bands as support and resistance. Similarly, you will find the market respecting the bands as they are often repelled by it.
There are some traders who have trading plan that simply trade the repulsion of the bands. This is especially effective when you are in a range. When you are in a ranging market, the price will always fluctuate up and down. When you see the price hitting the upper band, you can enter a SHORT trade (SELL) to profit from the repulsion. Similarly, you can enter a LONG trade (BUY) when you see the price hitting the lower bands.
The above are 3 effective support and resistance indicators that you should use in your trading as they are able to help you in your entry and exit. However you have to try each of them out on your demo account before you plunge into live account. Spend sometime to practice with them and make sure that they are able to fit into your trading plan.
To learn more about the Special Fibonacci Technical, Multiple Fibonacci System as well as the M pivot system, you can take a look at the Forex Street University course that I have specially created to help struggling traders to make money in trading.