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Sometimes a similar but weaker claim is made: that when such levels are confluent with more intelligently identified support and resistance levels, the levels are strengthened and made more valid. Again, I do not see any evidence for this. The positive expectancy per trade was unchanged. The result is that I do not believe there is any derivative indicator that can provide a trading edge by identifying support and resistance levels. But what about direct price levels?
Pivot Point Strategies for Forex Traders
Some traders swear by daily, weekly, or monthly high and low prices, sometimes also opening prices of various sessions. I do not see any evidence that such price levels. Firstly, daily or weekly high or low prices which show sharper, faster hits and rejections tend to be more effective than when the constituent price action is different. Secondly, much depends upon the broader context of what the price is doing. If the price is in a strong upwards trend, previous daily or weekly high prices are unlikely to be very effective resistance levels.
On the other hand, in a strong upwards trend, the price is unlikely to hit such support levels very often either. The bottom line on identifying support and resistance levels : do not expect to get an edge from any formula. You must know how to read a chart intelligently, and consider the prevailing conditions at the time the level is hit.
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For example, say 1. Then news is released that a relevant central bank has changed its interest rate and the price is driven up to 1. The best market condition in which to use support and resistance levels as a major basis for trading decisions is an absence of trend, i. Many traders tend to make the understandable mistake of looking for support levels in an uptrend and resistance levels in a downtrend.
I mentioned previously that by following trends, it is perfectly possible to make money without ever thinking about support and resistance levels. If you have ever wanted to take a trade, but felt that you were trading into a support or resistance levels, only to watch the price later shooting past the level without you, then you will know what I am talking about.
Traders searching for a better way to approach Forex should consider whether they are relying too heavily upon support and resistance. Such an over-reliance can lead to too much counter-trend trading and missing out on good trades. Adam trades Forex, stocks and other instruments in his own account. He has previously worked within financial markets over a year period, including 6 years with Merrill Lynch. Learn more from Adam in his free lessons at FX Academy. We commit to never sharing or selling your personal information.
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How To Trade Based on Support and Resistance Levels
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