Support and resistance zones are a key when it comes to determining the level at which the price of a currency's exchange rate is likely to reverse.
It is something I incorporated in my trading almost since the start.
The problem is, those zones can be very subjective. In most cases, a trader can usually only approximate those supports or resistances.
I remember having a hard time identifying the proper zones on my chart. I'd also get discouraged when I saw that other more professional Forex traders identified better or different zones on their chart.
I couldn't seem to get it…
Then, I began researching “how to draw support and resistance”. I came across a few articles, and even bought a Forex trading course on the topic.
I personally find the widely-available advice on drawing the right zones to be very subjective. It doesn't lead anywhere.
I first read about using a line chart to draw the proper zones. That helped a little:
But still, try it yourself and see if it works…
I still found this way to be slightly difficult to implement. It is hard to distinguish the strong from the weak support and resistance zones.
Slowly, I came up with a different way to identify the zones. I realized that this new way reduced confusion a lot. As an added bonus, it also gives a much clearer picture of how the market behaves.
A Powerful Way To Draw Support And Resistance Zones
The background story being given, let me outline the process I use to powerfully draw support and resistance areas.
1. Pick your favourite chart type
This first step is really simple and should be complicated. The only thing you need to do is to open any chart an pick the type you prefer. I use candlesticks but it's up to you to use whatever you want.
Do it now! Reading is boring, I want you to apply!
2. Identify all swing highs and lows
Then, you want to identify all the highs and lows you see on your chart. You might need to scroll in the past a little bit.
I want you to put a line at every top and low you see. It should look like this:
The lines do not necessarily have to be at the complete low. The important thing here is to draw a simple line at all lows and highs. It shouldn't be very subjective.
The powerful aspect of this step is that you will be able to easily determine whether the market is in a trend or not since you will see the highs and lows.
As you can see on the chart above, the market isn't currently in a trend.
3. Add lines to connect the highs/lows
The last step in drawing support and resistance zones consists of linking the highs and lows you identified with horizontal lines. Those will become your main support and resistance zones.
Here's what it looks like:
There is almost no way that the lines you draw will lie exactly on the highs and lows you identified. That is totally normal, be okay with it. Whenever you feel you can connect 2 highs/lows, add an horizontal line.
Once you have completed this process, you can be confident that the lines represent clear support and resistance zones. You can always adjust your lines, but it shouldn't be necessary.
In both cases, the lines drawn look similar. You can see that the line chart has one more lines. On my part, I prefer to keep things simple. I only look for the main support and resistance zones.
Some Important Notes
It is important to understand that this method works great on any time frame. The logic remains the same.
Make sure that the zones you identify are connecting 2+ highs or lows. The more, the better.
You may say that this process gives the same result as identifying support and resistance zones through a line chart.
I agree. However, I find this process to be simpler and it helps identify the trend.
In the end, whatever the process you use to identify the support and zones on your chart, make sure you are comfortable with it!