Is the market bend strong enough to scream at you to take it?
In this episode of Truth About FX, Walter gives some insider information on the best and easiest way to see support and resistance zones. He describes three important keys on catching support and resistance zones and choosing which candle to use.
Download (Duration: 05:47 / 6.63 MB)
In This Episode:
01:01 – trouble
03:14 – guided principle
04:24 – double bottoms
05:02 – x-ray vision
Tweetables:
Look for those sweet spots where you see repeated support and resistance. [Click To Tweet].
The best thing to do is to keep it simple. [Click To Tweet].
Take the trade if the chart gives a good pattern. [Click To Tweet].
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. How is it going, man?
Walter: Pretty good. How are you today, Hugh?
Hugh: Pretty good. Alright, today’s question is: What is the best way to draw support and resistance levels on your chart?
Walter: This is something that comes up. The two things that come up with Naked Trading is — because there’s, basically, isn’t any other things to worry — how you draw support and resistance zones and which candle should I be using?
Should I use the GMT midnight close candles or the five New York time? Really, that’s it. The main question that comes up, because you are not fine tuning indicators, but here is what I would suggest if you are having trouble.
There’s a couple of things to keep in mind. Keep your mind to these three things: one is they should really jump out at you. When you are looking to find support and resistance levels on the chart, they should jump out at least, super obvious.
The easiest way I know how to see these zones in an obvious way is to move up to a higher timeframe. If you are trading the one-hour chart, move up to the four-hour chart and look for those places where you see repeated support and resistance.
In the shownotes of this episode, I’ll link up a video for you so you can see how I view it and maybe that’ll give you a way for you to fine tune your own way by identifying these. The easiest thing to do is think where are the very best spot on the chart where the market has repeatedly found support and resistance?
Now, obviously, sometimes you are going to see spot where the market has found like the top and it hit the top and that it’ll pull away so it’ll find support and resistance. And, likewise, sometimes you’ll find a bottom where the market puts you to bottom and you only found support.
Those are also going to qualify zones because market will get back there and it often does. But, usually, 99% of the time, what you are looking for are support and resistance over and over again. If you look at the higher timeframe chart, that’ll help.
Number two is use line the chart so look for those little bends in the line chart to identify those support and resistance. That is a really, really good tip because if you are looking at the candlesticks sometimes, it is hard to tell where is the market closing. That line chart is just a one period moving average with the closing prices of each candles.
That’ll really link those up for you to make it really obvious. The third thing I would say is it does not have to be a situation where you draw every single one in so, as a rule of thumb, knowing that I do not expect the market to hit daily support and resistance zone everyday.
Typically, if I am looking at the EUR or the GBP, those zones are probably going to be between a 150 to 300 pips apart which means it is not everyday that the market is going to hit there. That is what I would say as another thing as a guided principle. Make sure that your candles aren’t hitting a support and resistance zone every single day.
If that is happening, then you draw too many zones in, they are too close and you are, basically every single day, you are going to have some sort of potential trading. That is not really the way that it works. Really, what you should have is when the market moves away from these zones and eventually hits them and that is where you are basically ready to take the trade if it gives you a good patter.
Those are my three tips for that. Are you trading the support and resistance, Hugh, or are you using other stuff?
Hugh: Yeah, I used that too, for sure. I use exactly what you said. I learned the line chart thing from you too also so that is pretty cool. It helps a lot. What about touches? I know the question comes up a lot but is there a minimum number of touches that has to touch the support and resistance line for it to be valid?
Walter: That is good question. I know there’s all kinds of rules around tradelines and the same sort of thing, like you’ve got to touch three times or whatever. I do not really look at that like, if I could see a really important support and resistance zone where the market bottoms out there just twice and sort of double bottoms and then finally it breaks through it so, that is a two touched zone and it’s broken through it. I am going to wait now for the market to come back up and hit it from below because, now, that’s probably going to give us a good resistance.
That’s the case where only two touches and you are good to go. I hate to be too tricky about it. I am not like the Thomas DeMark of support and resistance zone so I really don’t have double weird rules. I just say look, it should scream to you when you look at the chart, especially that line chart. Like what you say, Hugh, it’s such a great way.
It’s like an x-ray vision for the chart. You see these bends in the chart, you see where the market is really bouncing over and over again. I really do not have a median number. I would say definitely at least two, obviously.
The fact of the matter is if it’s giving you an all time high and an all time low, you’ll going to see one chart so I really do not have a minimum. I would say the important thing is that the market bends so strongly there to identify it. That’s where the fires come in, that’s where the solid came in.
Hugh: Cool! That makes it pretty clear. I think the best thing to do is to keep it simple, right?
Walter: Exactly.
Hugh: Alright. Thanks for that, Walter.
Walter: Thank you.
Shownotes:
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