Price action is one of the most popular trading strategies among forex traders. These methods rely heavily on support and resistance level. How to find these levels?

Price action is a phenomenon that helps you determine support and resistance levels on a chart. This is a popular trading strategy among both beginners and experts. Here is how to find support and resistance using price action:

price action


What are Support and Resistance?

Price levels of support and resistance are depicted as horizontal lines on a price chart. These price levels are formed when price bar highs are connected to other price bar highs or price bar lows are connected to price bar lows. When the price movement of a market turns around and moves in the other direction, leaving a peak or trough (swing point) in its wake, a support or resistance level is created in the market.

Trading ranges may be defined by support and resistance levels. These levels can also be observed in trending markets when a market retraces its previous movement and leaves behind swing points. These levels of support and resistance will frequently be respected by price. To put it another way, they have the propensity to restrain price movement, that is, until the price, of course, bursts through them.


Support and Resistance using Price Action

A price action trader's best buddy is the market's support and resistance levels. An entrance scenario can likely occur when a price action entry signal arises at a crucial level of support or resistance. A good risk-reward ratio is typically formed at key levels of support and resistance in a market.

The key level provides you with a barrier to place your stop loss order beyond. Because it has a high probability of being a turning point in the market, there is usually a good risk-reward ratio formed at key support and resistance points. The price action entry signal confirms that the price may move away from the important level of support or resistance, which may take the form of a pin bar signal or another signal.


Tips When Using Price Action

  • Try not to go crazy attempting to draw every level on your charts. This may take a very long time. The key daily chart levels are the essential ones. Thus, your goal should be to locate them. We presented some instances of critical daily chart levels above.
  • When you create horizontal lines of support or resistance, they won't always hit the precise high or low of the bars that they link. This is because those highs and lows aren't always consistent. There are situations in which it is acceptable for the line to connect bars that are slightly below the high or slightly above the low. Realize that this is not an exact science. Rather, it is a talent and art that you will become better at with practice, experience, and the passage of time. This is the essential thing to keep in mind.
  • If you are unsure whether or not to act on a specific price action entry signal, you should ask yourself whether the price is currently trading at a crucial level of support or resistance. It is possible that it would be more beneficial to pass on the signal if it is not at a crucial level of support or resistance.
  • Suppose a price trading technique like a pin bar or inside bar method originates from a confluent level of support or resistance in a market. In that case, it has a considerably larger probability of success than if it forms from any other level in the market.

Price action is not hard to understand, but for new traders, it might take some time to grasp it. To learn about this strategy, new traders can start by reading price action books available online.