Support and resistance is so important in trading. Its reliability varies a bit from market to market. In the Forex market, support and resistance levels are very important, but not as reliable as they are in the stock market.
The reason for this is because retail traders only make up an estimated 15% of the Forex market. When a big bank or international company need to buy a bunch of Euros, for instance, they couldn't care less whether or not the Euro is at a good technical level for a buy. They're going to get their Euros.
If enough Euros are bought, the supply drops significantly, and demand goes up, causing the price of the Euro to go up in relation to any other currency that it is paired with. This type of transaction can cause the Euro, or any other currency, to spike right through what may have seemed to be an important structural point in the market.
That being said, support and resistance is still one of the most important leading technical indicators in the Forex market, or any other market, so you'd better learn how to use it correctly.
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Rookie Mistakes with Support and Resistance
New traders rarely bother plotting out significant support and resistance levels. I can attest to that, because I used to hate doing it. Then I tried a few trading systems that relied heavily on support and resistance, and realized how much money I had been needlessly loosing over the years because of my laziness.
I understand. It can be a little daunting to learn something so subjective in nature. As traders, especially after we've gained some experience, we like to use easy to follow, step-by-step mechanical processes. That way, we cut out as much human error as possible.
The problem is that not everything in trading can be done so mechanically. Choosing good support and resistance levels is a mixture of mechanical rules, knowledge of how the market works, experience, and common sense.
Another problem that new traders have, or traders that are new to the use of support and resistance, is that, when they begin to trace support and resistance, they tend to see everything as support or potential resistance. Luckily, this is easy to fix.
In fact, I ask you to follow this blog to avoid these mistakes, you must have a good understanding of what makes one level stand out more than another, which makes it a very important level, how the market makers use these levels and how you can use them. them in their own trade.
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