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If your support and resistance levels drawn on your charts look like this, then you need to see a doctor…
The 2 biggest problems with charts like the above are these: (1)It is messy and a messy chart just confuses the heck out of you (2)so if a messy chart confuses the heck out of you, how do you expect to trade well?
If you your charts look like that above, you need to start changing it to better show only the support and resistance levels that you really need. And I will show you can do that in this post.
The best thing you want on your charts is to have less clutter.
Less clutter means removing all the other “unnecessary things” that you don’t need and just have a clean refreshing chart with only the few things like a few indicators or support and resistance lines that you will need to make your trading decisions on.
Your Support and resistance charts should be like this:
- note that I only have a few lines on this chart and removed everything else that did not matter.
- you do not need to draw the blue boxes and the “R” and the “S”. These are just the most nearest support or resistance levels that I used to draw the support and resistance lines.
As you can see on the chart above, I’ve only highlight the support and resistance levels that matter in this situation.
Here’s the thing you need to understand about support and resistance levels: they occur in all timeframes.
- Every timeframe has its own support and resistance levels.
- The support and resistance levels found in the higher timeframes have much more significance than those found in smaller timeframes.
So in here, support and resistance levels that matter happen in larger timeframes and this post is about how to finding them.
5 Way To Finding Forex Support And Resistance Levels That Matter
Ok, now, I get to the meat of the article…how to draw support and resistance levels on your charts that matter.
#1: How Obvious Is It?
If you have a 5 or 6 year old child, try to show him a forex chart as ask him: How many mountain tops and valleys you can find on this chart?
That child is going to pick the most obvious peaks and troughs of price on your chart!
So the first thing you do when you scan your chart is to find levels that are so obvious to you and to thousands of other traders worldwide.
#2: Has Price Reacted To This Level On A Previous Occasion?
If price has reacted to a support and resistance levels on a previous occasion, then that gives you a really good clue that it is a support or resistance level of importance and you should expect the same sort of result when price hits that level again.
#3: Trading Timeframe
Well first, go back to the EURUSD chart above and notice that this chart is in the daily timeframe.
Support and resistance levels should be relevant to your trading timeframe based on the rules of you trading strategy, for example:
- you may use the daily timeframe for your analysis of support and resistance levels but your trade entry can be based on the 4hr or 1 hour and your trade management can be based on the 1hr or the 4hour.
- If you are trading the breakouts of support and resistance levels in the 5 minute timeframe then the support and resistance levels in the daily, weekly or monthly timeframes may not matter to you at all because it is irrelevant based on you trading system’s rules.
#4: Closeness of Price Action To That Of The Support And Resistance Level
If a support and resistance levels is too far away and price will not hit that level until like 6 months later, then it is absolutely pointless to draw such a line on your chart.
Price will not hit that level for a very very very long time and you don’t need that. So why put it there?
The only time that support or resistance levels needs to be drawn on your chart is when price action is very close to it and it is most likely going to hit it very soon, like in 2 weeks,days or even hours and you need to make your trading decision(s) based on that.
That’s when you draw it on your charts to make you aware of what is happening.
#5: Support And Resistance Levels Are Zones
Many forex traders think that support and resistance lines are just a fixed price level…that once you’ve identified it, wait for price to come to it and bounce off it or break it and take a trade based on those setups…
But the reality does not happen like that all the time.
If this was the case, drawing support and resistance levels would simply be a simple matter: find a price level where price bounced up or down from previously and draw a line and wait for price to come to it…and that’s it!
No, it doesn’t work like that all most times…
You see, there will be times when price will come exactly or be within a few pips or cross the support and resistance levels by a few pips and bounce.
Then there will be time when it will not hit the support or resistance level and bounce back even 10-20 pips (or even more)away from the support or resistance level.
Why is that?
Well, one reason why this happens is because of what is called support and resistance zones….
In a support or a resistance zone, expect price to move/bounce from anywhere within the zone.
This chart explains what a support and resistance zone means:
So how do you draw support and resistance level zones? Here’s what I do and I’m no saying this is the best way to do it:
- Identify the first resistance peak or the support trough and draw your first line.
- then as price moves along and then you have an outer extreme peak/trough form…that forms your outer line.
Note: the outer extreme line can be the first resistance peak as well as the support trough.
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