Trading by levels in a trend

How To Trade Based on Support and Resistance Levels

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Identifying key chart tools and knowing how to trade them plays an important role in your trading performance. Support and resistance levels form the basis of many technical price-levels and are essential tools in any technical toolbox.

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Key chart levels are important technical levels at which a financial instrument could face increased buying or selling pressure.

Traders look out for key chart levels to place their buy and sell orders around those lines, which accelerates price-moves and increases volatility when the price reaches those levels.

Most amateur traders make the mistake of taking price action signals regardless of where they occur and then wonder why their winrate is so low. In my own trading, I pay a lot of attention to the location.

Typically, key chart levels are identified by support and resistance lines, which act as barriers for the price when reached from the upside or downside, respectively. Support levels are price-lines at which the market had difficulties to break below, signalling that buyers may join the market again if the price falls to a key support level.

DOW Jones 7 January 2021 Trend Trading Strategy Technical Analysis

Resistance levels are quite similar to support levels, only that they form to the upside and signal price-levels at which the market had difficulties to break above.

When the price reaches a key resistance level, sellers may jump into the market and send the price lower again. Read: Step by Step Guide to Forex Signals Types of Support and Resistance Levels There are many types of key chart levels which act as important support and resistance levels in the chart.

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Horizontal key chart levels: As their name suggests, these are horizontal levels which are placed at the top of a previous swing high, or at the bottom of a previous swing low.

Horizontal key chart levels are then projected into the future to mark price-levels at which the market may retrace, as shown on the following chart.

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Trendlines and channels are commonly used in Forex trading to spot uptrend and downtrends and ride the trend. The following chart shows how trendlines and channels could act as important turning points for the price.

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Just like with rising channels, the lower boundaries of a downward trading by levels in a trend channel act again as support levels, while the upper boundaries act as resistance levels for the price. Channels are quite similar to trendlines, only that they include a second trendline which is drawn parallel to the first trendline.

You can use or MA, and it works fine.

The psychology of market participants shows that traders tend to place their market orders around round numbers, increasing the buying or selling pressure around those levels. Did you know? An exchange rate of 1.

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Dynamic Key Chart Levels: Last but not least, dynamic key chart levels change with each new price-tick.

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