Trading Support and Resistance with Currencies

When it comes to trading, none of us have a crystal ball.

We can’t tell you with obscene accuracy what’s coming next. 

But what we can help you do is attempt to gauge the possible intentions of buyers and sellers.  One of the easiest ways to do that is by simply identifying patterns of historical support and resistance, which lets us know where buyers and sellers are reaching a point of exhaustion.

When we look at a double (or triple) top or bottom, we’re able to see where traders are struggling.  These are the points at which things may begin to shift at prior points of resistance and support.

When prices begin to fall, we want to find areas of prior support, which represents the point when buying begins to overwhelm the selling.  When prices begin to rocket higher, we want to identify prior points where resistance has stopped a prior run higher. 

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The more times a stock bounce off support and resistance, the stronger these support and resistance lines become.  If something repeats itself over and over, that trend becomes a much more reliable indicator of trend change.

Look at the euro, for example.

Since 2015, we can clearly see a defined channel with prices ranging between $1.05 and $1.16.  In fact, since March 2015, we can see selling has historically become exhausted at $1.05.  Buying also became exhausted around $1.16.

As we can also see, as of July 2017, the top of the channel was again being retested.

If the euro was able to break through prior resistance points of $1.16, it could race to higher highs.  However, based on the history of the euro since 2015, traders at the time may have also been setting up to short the currency at resistance. 

Of course, nothing is ever set in stone with the market. 

But it’s something to be well aware of.

Also, with any technical tool, we never want to rely on just support and resistance points as sole indicators.  We want to always confirm with others tools, such as with Bollinger Bands, moving average convergence divergence (MACD), relative strength (RSI), Money Flow (MFI) and Williams’ %R (W%R).

For example, as the currency attempted to break above $1.16 in July 2017, an argument for near-term downside could be made, as RSI and Williams’ %R became over-extended.

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