support and resistance levels are one of the first things that new traders will (hopefully) learn before they use real money in the Forex market. However, we maintain that support and resistance is not always a fail-proof guide.
The general consensus is that in order to be a profitable Forex trader, one wants to go long near a support level and go short near a resistance level. One of the problems with this approach is related to the time. Used to measure support and resistance. For instance if you are a short term trader or scalper, your support and resistance levels will probably look far different than those who swing trade or hold for longer time frames.
There is no tried-and-true, guaranteed method to use support and resistance for trading. This is why it is advisable for new traders to spend some time learning these fundamentals with a demo account since it is quite easy to make mistakes when identifying support and resistance levels.
The reason why some Forex traders get trapped is because they do not know when to treat an old support as a new resistance level or vice versa. Sometimes when markets are extremely volatile, especially when there is a large volume due to a news event, what you thought was fairly strong and established support can quickly become a resistance level in the face of a sell-off. Unless you have seen a number of significant reversals like this, where the price of the pair defies all your back testing and current assumptions, you can easily make the mistake of buying into the wrong side of a trade, which is a great way to burn up your account in a matter of minutes.
Instead of determining just one support and resistance level, be aware of privet and inflection points along the historical timeline. How does the pair reacts, historically, to good and bad news? What about the time of day, or the day of the week, do these things influence the strength of support and resistance for the pair your trading? More importantly, what is your plan should you get caught in a trap? Without proper money management rules in place, and given how arbitrary support and resistance levels can be in the trader’s eye, it is absolutely impossible to make objective decisions.
the point? Study the pair your trading, be aware of the environment, including time-frame and market events, do your best to establish a general range of support and resistance levels, and watch your trades closely, with stops in place. Forex trading is more an art than a science sometimes, which is why some people prefer to simply be a Forex affiliate rather than a trader.