Page 72 - Ultimate Guide to Currency Trading

Support and Resistance Indicators

Another set of indicators that you can use is called the support and resistance indicators. The idea
behind the support and resistance indicators is the thought that there is a mathematical and statistical
price level of all currency pairs that is difficult to pass through. Most brokerage firms offer information
as to the mid- and upper-support and resistance levels of the FX pairs that they cover. A broker's
report or news service such as DailyFX (www.dailyfx.com) or FXStreet (www.fxstreet.com) can give
you quick data as to these support and resistance indicators.

Support and resistance are price levels that are not only difficult to pass through, they also
offer a psychological indicator for FX traders. Sup-port and resistance indicators are mathematically
calculated places for a particular currency pair to naturally stop its downward (support) or upward
(resistance) movement. These lines are estimates taken from historical closing levels for the previous
several months, psychologically significant levels, and graphic lines called Fibonacci lines.

It is more important to know how these support and resistance lines are created than how to
create them yourself. If you know the basics of what they mean, you can jump right to using them in
your trading plan. Some-times it is just as good to know how to use a statistical or technical indicator
rather than to spend a lot of time trying to run a lot of scenarios and then trying to come up with your
own fresh information. The idea is similar to knowing how to drive, or first having to know how to
design a car: if you really want to get somewhere, then just turn the key and go; you don't need a
degree in mechanical engineering to drive your car to the grocery store!

Some Forex news-feed services offer excellent quality technical analysis. It usually costs
to have access to these reports, but paying for this high-quality information can help you
get on to actually trading FX, or at the very least help back up your own technical
analysis.

The same is true for resistance and support lines. Since almost all news feeds, brokers' reports,
and FX trading websites will be publishing first and second support and resistance lines for every
currency pair, spend your time learning how to use the information instead of creating the
information. After getting to know how to use this type of technical information to time your trades
effectively, you might want to consider reading and studying how to create your own data. In the
meantime, use the sources of information you have. Since technical analysis is somewhat of a science,
most professional technical analysts will be coming up with the same information and will publish the
same support and resistance levels (give or take) to their readers. That is one of the advantages to
subscribing to higher-end news services and having access to full-service brokers' reports: Much of the
work is done for you!