Traders are so often wrapped up in looking for the best price action signal and the one candlestick pattern that is going to bring them their riches that they fail to realise the key to price action trading; Support and Resistance. A lot of price action educators are teaching their students how to only spot the very best price action entry candle.
What I mean by this is support mentors are teaching their students how to identify the last candle on the chart, but not the rest of the price action story. An example of an entry candle is a Pin Bar reversal. A Pin Bar reversal can be trading very powerful price action signal, but only when placed into the right price action story. When the Pin Bar is placed into the wrong story it can be a disaster and this forex where support and resistance comes in.
Support and resistance make the price action story. Every chart we look at is telling us a story and it is our jobs as traders to learn what it is telling us. We can learn many things from a chart such as:. The price action story is the most important part of any trade. The entry candle is only the last candle and only the confirmation candle for entry for any trade. If traders are to enter a trade without any knowledge of and the price action story is, they are severely hindering their chances of a winning trade.
For example; a Pin Bar rejecting a key resistance level that is with the trend and that has space to trade into has a lot higher chance of being a winning trade than another And Bar that the trader does not have a clue what the price action story is. Much like baking a cake, making winning trades is about adding in more and more and layers and mixing it all together.
If you are making a cake and you only put one ingredient into the cake and mix it together your cake it going to be pretty bland tasting cake. It is exactly the same with trading price action signals and working with the price action story. You need to add the layers and mix as many quality ingredients as you can to make the best product. If you are only going to trade one entry candle by itself, then your chances of having a winning trade by itself are not going to be great.
If on the other hand you trade that entry candle with other layers such as within a strong trend, at a key support or resistance level, at a key swing point and a critical Fibonacci level then with the added layers of confluence your trade is going to resistance a much better price action story and a much high probability of being a winning trade. Support and Resistance are NOT perfect straight lines. They are levels, areas or zones. The most important part of any chart, in any market is the horizontal support and resistance levels.
The support and resistance levels that price action traders take their trades from are FAR more important than signals that they use to enter the trades. This is something that can take traders a long time to get their heads around, but it is very important they do.
The entry signal that traders use to enter the market is only the last one candle. The support or resistance level is many candles that have been proven by the market in most cases many times previously. The reason it is so crucial that traders trade from key support and resistance areas is because they are trading with the rest of the market. Many traders however, go about this back the front i. The best way to avoid this and to also keep trading simple is to identify the key levels first.
After you have your daily charts set up, go through them and identify your key support and resistance levels. Below I will quickly cover the simple routine with how you should do this in a basic tutorial. Like everything in trading the best resistance to mark support and resistance is to keep it simple.
There are so many ways to do everything in Forex and there are also so many people wanting to tell you how to do it. In my trading the longer I go the more I realise simpler really is best. All of my charts are setup on a daily chart and my chart analysis is now run on a MT5 platform. This is not available with MT4. Whilst with MT4 I can bring up any time frame I like, I have to bring up a new separate chart and lose all support levels, whilst with MT5 I can just seamlessly flick through any time frame I like keeping the same levels.
Why I need this will be explained below. On a Sunday evening I go through my charts and mark my support and resistance levels on forex daily charts. I watch around 40 or so pairs. This includes Forex and indices. The levels I mark include any levels I may be looking for price to move back to for any trading opportunities or any breakouts I may be looking resistance trade etc.
I only mark two support and resistance levels on any one chart. I can never understand the charts that you see on the internet with 20 support and resistance lines all over them going everywhere. The basic rule is; I have support line above price and one below and if price breaks through one of them, levels I reassess and mark the new level. There is simply no need support mess up a whole chart with a bunch of rubbish and hide the most important part of the chart; the PRICE ACTION.
Trading Intra-day Signals from Daily Marked Levels. This is a key rule and will stop a lot of traders from getting into trouble with their trade entries. The smaller the time frame the trader moves down to, the more support and resistance levels they are going to start seeing and also the less important the support and resistance levels are going to become. This is why marking support and resistance levels on the daily chart and then using these levels to trade from on all time frames can help traders to always trade from great areas on the charts.
Instead of moving down to the 4hr chart and looking for support and resistance levels to trade from, traders are much better off going to their daily chart and first identifying their key levels and then moving down to their intraday chart to spot price action signals at the key daily level. Below is a daily chart with two levels marked. You will notice one level is above and the other below price. These levels are the two most obvious support and resistance levels in this market that price will have to move through to either move higher or lower.
These are both key support and resistance areas. Having marked these key levels on the daily chart I can now levels to the 4hr or any intraday chart and have confidence to trade knowing that I will be trading from key levels as long as I trade from these same key daily levels. The trading chart below is the same pair as above with the same levelsbut now on the 4hr time frame.
This chart highlights the key levels and shows that they are even more respected on the lower time frame chart. A key reason for trading this way and trading intraday signals from daily marked levels is to keep traders out of no mans land. What this means is; not getting into trades from swing highs and not at swing lows, but in the middle. This is stopped when trading from key daily levels.
You will see on the 4hr chart below the major support and resistance levels are both at the high and the low and they are not in between or not in the no mans lands. Traders who are not trading this way run the risk to flicking to their 4hr chart and trading from any support or resistance level and can get caught out in this middle area that is the danger zone. This same process can be used to trade on any intra-day time frame whether it is trading on the 8hr,6hr,4hr,2hr,1hr or even lower.
If you are looking for more information on support and resistance there is another lesson that can be found here: How to Mark Support and Resistance You can also watch a video that goes into depth about the price action story here: Learn About the Price Action Story.
I hope you are learning through these articles and videos and starting to put it all together in your own trading. Trading you are want to take your trading to the next level and learn more advanced price action concepts such as breakout and continuation trading check out our price action course page here. If you have any questions about anything at all you can contact me here. Johnathon Fox is a professional Forex and Futures trader who also acts as a mentor and coach to thousands of aspiring traders from countries right around the world.
Johnathon specialises in helping traders reach their full trading potential by helping them master the art of price action trading and correct money management techniques. Starting to really put it all together and turn the corner thanks to you. I have been a members for two months now and can not thank you enough.
I am so lucky I found you. I just wish I found you earlier! This article really spoke to me and I felt you were writing it to me. This routine and only using levels levels is exactly what I need. Hey very nice blog!! I will bookmark your blog. How I wish I had known about this 3 years ago! Still time levels make up for lost time eh!
Thank you so much Johnathon for the brilliant lesson. Also,will my target level be the major daily support or the next support level on the four hour chart having said we should manage our trades on the chart that we enter the trade? Hi Johnathan, Thank you so much for the article regarding trading from key levels. However I have a question. When I draw the daily key levels and trade from the 4 or 1 hour chart, is my target profit taking level the next support that is if I took the trade from the resistance level?
And does is add more wait if I trade only in the direction of the resistance chart avoiding counter trends. All the trade management should be done on the same time frame you are making the trade. If you make a 1hr trade, then you should be working out the stops and all targets using the 1hr levels and never going to lower time frames and I forex this in-depth here: Whilst we are using the daily chart levels, as I said and every chart is individual and has it own invidual trends and you can read about that more here: Notify forex of followup comments via e-mail.
You can also subscribe without commenting. Arial, Helvetica, sans-serif; text-decoration: Support and Resistance — The Price Action Story Forex Lesson was last modified: May 19th, by Johnathon Fox.
About Johnathon Fox Johnathon Fox is a professional Forex and Futures trader who also acts as a mentor and coach to thousands of aspiring traders from countries right around the world. Doctor Fox Trading thing simple using 2 key area levels, i enjoyed all your article thanks doc. Can you recommend a Trader s with MT5 and a NY Close. Jan van Loggerenberg says: Hello Jacqueline, when you place a trade you should be managing that trade and looking for the profit and on the time frame of that same time frame.
Price Action is the best tool for Traders as well as support n resistance area. Cancel reply Login with your Social ID.