Which Moving Averages To Use As Best Forex Support and Resistance Indicators

Moving averages can be a fantastic tool to use as dynamic support and resistance…

The advantage they have over static support and resistance levels like trendlines, is that they use an average of recent price levels to form their smooth lines, arguably making them more reactive and, therefore, a better indication of where the price of the market may respect.

Here Is a YouTube Video That Will Take You Step By Step Through How To Analyse A Trend Entry Using Moving Averages As Your Support And Resistance Indicators

 Best Forex Support And ResistanceIndicator To Use To Trade Support And resistance

So, the big question is which ones should you use!?

With so many blogs and tutorials out there suggesting their favourite methods it can be tough to know which is the best one. I want to take a slightly different route and help you to decide using a test strategy on your charts.

Ok, first off, moving averages are most useful in trending markets – that is uptrends or downtrends. Now, they are not completely useless in ranging markets, but as support and resistance levels, trending markets are certainly preferable.

So, you have your market that is in a trend – as you can see from the image below – which is a 4 hourly chart of the NZD/CAD.

We can see that the downtrend has already given use 2 lower highs and we want to try and use our moving averages to enter on the third lower high. Now, what we are going to do is go through the various moving averages to see which ones give us the best indication of resistance.

So the most commonly used ones are:

10 day

20 day

50 day

200 day

What we are looking for is 2 moving averages that, once applied to the chart, the market bounces in the middle of.

So, personally I always start off with the 20 day and 50 day as you can see below.

Now, here we can see that these two are simply too low for this time frame on this pair.

So next I will get rid of the 20 day and add the next moving average, which is the 200 day. This is the step you should follow on any market you are looking at.

So, here we go! Now we can see that our two higher lows have bounced right in the middle of our 50 and 20 day moving averages and so these are the correct ones to use for this situation.

Right, so we are now going to be looking for price to retrace in-between the 50 and 200 day moving averages before we place our trades.

One final point is that you should always have at least 2 points of reference on your charts, no matter which indicator or technical analysis method you are using – I have found that horizontal support and resistance levels work really well with moving average support/resistance.

Here is an example of what this would look like once you have added it to your chart:

So, in actual fact you will not only be looking for the market to retrace in-between your moving averages, but you will also be looking for it to meet one of the horizontal support/resistance levels before placing your trade!

I hope you found this article useful, don’t forget to follow me to be notified of the articles that I am posting and hit the like button to let me know what you think.

Also, feel free to comment below with any questions you might have regarding moving averages as support and resistance indicators!

Combining Trendline and Horizontal Levels - Support and resistance Forex Trading Strategy

 Many beginner traders are aware of using trendlines and horizontal support and resistance levels individually but do not use them effectively enough together...

In this blog post I want to explore the steps to take to combine them and then use real time examples to show you how this can be applied in the markets.

Here Is A YouTube Video That Will Give You A 5 Step Forex Support And Resistance Forex Trading Strategy...

An Easy To Follow 5 Step Forex Support and Resistance Strategy

Step #1 - Line Chart

So, the first step is to ensure that you have a line chart selected as opposed to a candlestick chart. Whilst candlestick charts can be useful for a lot of situations, especially later in the strategies, a line chart is a lot clearer at this point.

Step #2 - Determine The Trend

A lot of beginners make the mistake of looking for the horizontal support and resistance levels first - this is a mistake because you can spend a lot of time finding the best horizontal support/resistance levels in the world, but at the end of the day there might be no trend to trade!

So, an uptrend is confirmed when you are able to draw a line through 2 higher lows and a downtrend is confirmed when you are able to draw a line through 2 lower highs. take a look at the downtrend example below:

In this image we can clearly see that a line can be drawn through 3 higher highs on the Euro/Us Dollar pair confirming that this is a downtrend. You can also see that ensure maximum clarity a line chart has been used.

Step #3 - Determine Support and resistance Horizontal levels

Now, here is where you need to correctly identify support/resistance levels. To do this look for areas on the chart where support/resistance has occured at least 3 times - this is counted as a major level and price will likely pause again at this level. Have a look below at our chart:

As you can see above there are 2 major support/resistance levels and we can see that price has broken through and retraced to the first one.

This could be a potential trade and many traders would take this opportunity. However, the safer option is to wait to see if price retraces further - it is likely that, if it does, it will retrace to around the point where the second support/resistance line meets the descending trendline - if this area holds then this will represent an excellent trading opportunity. 

In the end it is down to you which option you would take but....

Always remember guys, whichever trades you are taking make sure you use a stop loss!

Ok, thank you for reading this blog post - I hope you found it useful. Follow me to be notified of all my blog post updates which will happen each day!

until next time...

The Psychological Importance of Support and Resistance Levels

Support and resistance levels can be thought of as the "battle lines" where the bears and the bulls face off...

There can be no doubt that this can seem like a simple concept but support and resistance levels can come in many different guises and, as you dig deeper, you realise that these crucial areas are more difficult to master than they first appear.

Here Is A YouTube Video Which Gives You 3 AMAZING Tips On How To Identify And Draw These Deceptively Simple Levels...

3 Amazing Tips To Identify And Correctly Draw Support And Resistance Levels

However, there is no denying that they represent levels were traders of all shapes and sizes in the market are aware of and so to ignore them or to negate their importance will be the downfall of many a trader.

So, resistance occurs where a downtrend pauses - due to buying activity coming into the market - the signature bounce can be seen;

Resistance, on the other hand, acts like a ceiling where an uptrend pauses - again a bounce is visible;

These levels should actually be thought of more as areas because the market will not always fall or rise to exactly the same level. Therefore, traders can miss out on potentially profitable trading opportunities if they think of these levels as purely lines.

Another important feature of these areas/zones is that even if the first time they were created was far back in the markets past they can still apply - especially if they are a major support or resistance level.

Now, this is important - support and resistance levels should not be thought of as being individual. They should be thought of as being interchangeable. This is due to the fact that support becoming resistance, and visa versa, is a regular occurrence in the markets. 

If a market has tested a particular level - no matter whether that was with support or resistance or both - 3 times or more (this is my own strategy, but opinions certainly vary) then it becomes a major support level.

Now, these major support levels are the areas that you should be searching for on your charts as they represent the most likely points that a change in the market direction will take place and, thus, often present excellent trading opportunities. 

Hence, the importance of the psychology behind support and resistance levels...

Ok guys, I hope you enjoyed reading this blog post! Make sure you like it, comment to ask me any questions you have and follow me to be notified of my updates - I am going to be posting at least once a day so follow to make sure you don't miss anything!

Until next time...

How To Use Moving Averages To Trade a Forex Trend

If you are just getting started in the forex market then the first strategy you should try should be trading with the trend.

More often than not indicators can confuse forex noobies. However, when used in the right way they can be a real asset to a trader’s trend following toolbox.

Trend indicators are used for 2 main purposes. The first is to help ascertain when a market direction is changing so as to enable the trader to enter the new trend as quickly as possible. The second reason might be further through a trend to assess whether now is the right time to enter.

A cautionary note here though. A maximum of 3 indicators should be used to aid your trading. Due to the fact that indicators derive their information from differing mathematical calculations, if you have too many on your charts they will end up giving you conflicting signals – actually a worse position to be in than if you never used them at all.

Here is also a YouTube video which gives you the 5 best trend forex indicators and shows you how they can best be used!

The Top 5 Indicators That I Have Found To Trade With The Trend

Indicator #1 – Moving Averages

Simple moving averages can be an excellent aid to tell the trader when a market may be about to change direction and also to tell whether now is a good time to enter in the current trend.

The 2 most commonly used are the 20 and 50 day moving average. If the 50 day is below the 20 day then the market is moving up and if the 50 day is above the 20 day then the market is moving down.

A cross of these 2 on a chart is also a very important signal. The 50 day moving above the 20 day may be a signal that the market is about to move down and a cross with the 50 day moving below the 20 day is a signal that the market is about to move up.

These crosses can represent excellent opportunities for a trader to enter the market to make the most of the upcoming change in a trend. However, the decision to enter should not solely be based on this indicator and other parts of your strategy should confirm what the moving averages are showing.

If the market you are looking at is in the midst of a trend then the 50 and 20 moving averages can act as dynamic support and resistance levels. if we take the example of the downtrend below we can see that the market consistently moved backup to the 20 day moving average throughout the downtrend before heading back down:

In this instance you could used the 20 day moving average as part of your strategy to tell when was a good time to enter the downtrend and profit from a continued move down.

Be aware though, that this does not always apply. Confirmation of this can only be taken when the market has moved back to the moving average and bounced off it at least twice - whether that be an uptrend or a downtrend. This is also why moving averages, and all other indicators for that matter, should form a part of your overall strategy and you should not solely rely on them!

I hope you enjoyed this article - please comment to let me know if you use this indicator and how successfully. Also hit the like button and follow me to let me know what you think and share so I can continue to write.

Thank you in advance....see you next time

4 Steps To Trading With The Trend

Trading with the trend is widely acclaimed as the best strategy for the noobie Forex Trader. There is a lot to be said for the old adage “The Trend Is Your Friend” and many worthy beginner traders come unstuck because they assume that the best way to enter the markets is to look to buy at the bottom of a trend or sell at the top.

Whilst this can be a prudent strategy, it is not for the beginner and takes a lot of practice and experience to be able to pull off trend reversals effectively.

Fear not, however, as trading with the trend can yield excellent profits and, as you practice with this method, you are naturally building up your skill set and experience. This can then later be used to great effectivity for more complex and more profitable strategies.

So, without further ado, let’s get started…

Step 1 – Identify The Trend

Here is a YouTube video that will walk you three methods to identify a trend:

3 Ultimate Trend Identifying Tips!

This is by far the most important step as, if you get this bit wrong, it will render the rest of the steps irrelevant.

There are 3 different methods that I recommend to correctly identify the trend and you can see a YouTube that I have created which focuses on this here:

My favourite method is to use Highs and Lows – this method consists of analysing the chart and plotting high and low points to confirm or invalidate the trend.

In an uptrend you would plot a series of subsequent high points. Underneath this, on the same chart, you would plot a series of subsequent higher low points.

As soon as you get a lower high point or a lower low point then the trend is invalidated and may be about to change direction.

Step 2 – Find An Entry Point

So, once you have correctly identified the trend, the next step is to work out where you are going to enter your trade.

Another mistake that a lot of beginners make is trying to trade both directions on a trend – this should not be attempted and is likely to cost you far more money than it makes you!

The best method for finding an entry point in an uptrend is to look for retracements back to the higher low areas. You have to make sure that it is at least the second higher low as only then is the uptrend confirmed.

You can then enter and potentially make money from the continuation of the uptrend. Don’t forget you should look for a candlestick signal or indicators/s signals as added confirmation that the trend will continue.

In a downtrend it is exactly the same process, except you are looking to enter at a retracement back to lower highs.

Step 3 – Use a Stop Loss

Always make sure you use a stop loss when trading! This is absolutely crucial! Spread Betting is leveraged and using a stop loss will deleverage your trades, meaning that you are far less likely to lose more than you originally invested.

A good rule of thumb for setting a stop loss is to put it below the lowest point of the higher low entry level on the uptrend and above the lower high on a downtrend. The amount at which you set the stop loss away from the higher low/lower high is dependent on the time-frame you are trading on.

For example, I mostly trade on the daily and 4 hourly time-frames and so I usually use a 100-150 pip stop loss.

Step 4 – Always Have a Target

This is far better worked out before you take the trade because you are far more likely to be thinking logically and clearly when you are in the initial planning stages of the trade than when it is in motion.

When in an uptrend I target my take profit 100-200 pips above the previous high and in a downtrend 100-200 pips below the previous low. This also tends to set my risk to reward ratio up to be at least 1.5-1 and often 2-1.

Make sure you don’t move your take profit target – it is important to make sure you are taking profits off the table and not get swept up in greed – this will lead to winning positions turning into losses.

Ok, that’s all for this blog post guys. I hope you enjoyed reading the article.

Don’t forget to check out my YouTube video on 3 methods to correctly identify a trend!

Until next time…