If you have scoured many Forex trading forums, then you've probably heard many traders mention the words "support" and "resistance". I for one, am a big believer in trading with support and resistance. The problem is that when many traders (not all) mention these words, they don't know what this actually means.
To most traders, this means you put an indicator on your chart that will magically put these support and resistance areas on your charts. My question is how does this indicator have the slightest clue where TRUE support and resistance is? The answer is it doesn't.
There is no possible way for any indicator to know that kind of information. The indicator merely uses some generic formula and applies the formula to their chart. I don't care what anybody says. There is no magical formula that can give you a constant representation of where the S/R is on a chart.
The markets are constantly moving. You are using a static formula to explain a dynamic market. Don't you think that if it was really this simple to calculate these key areas, there would be a whole lot more successful traders?
You have to dig a little deeper if you want this kind of information. The truth is you can do it just by looking at a simple price chart. I don't care what market you are looking at. The price action will always give you clues as to the tendency (whether they be it, bullish or bearish) of the where the future direction of the market is headed.
I'll give you a clue. Think about volatility in the market. You watch the price action of a particular currency pair, and it's been fairly stagnant, and all of a sudden.......BAM!!! The price goes through the roof (or the floor, depending on your perspective). Think about the emotional responses that both the winners and losers are having at that moment.
At this point, there are traders who know they are on the wrong side of the market, and they desperately want out, while you have other traders who could not be more thrilled to be on the right side of the market.
Now, think about what I just mentioned as you look at your charts. The information is right there in front of you. It's like an X-ray of the market and it represents both the fear and the greed that many traders have.
The key to trading the Forex market comes down to price action.
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