Using Resistance Levels to Maximize Your Profits

Technical analysis is dependent on a number of different patterns that can be drawn on your charts. These patterns provide a modicum of predictability that will allow you to profit from the movement of currency prices. A resistance level in Forex is trading is a point at which the market tends to trade below. If a ceiling is touched repeatedly with the price failing to go past this point, then this resistance level is believed to be much stronger the next time it is approached. Levels of resistance indicate a specific price point that the currency pair will have difficulty crossing beyond.

Resistance levels share a lot in common with how they are developed in relation to support levels. The highest point that a price moves and then retraces is the beginning of a resistance level. The more times that the price fails to move beyond that price the stronger the level of resistance comes for Forex trading. Technical trading stipulates that the resistance level is the point that price will reverse and traders should begin to sell their positions.

Fibonacci levels, moving averages, the upper limit of Bollinger bands and trend lines can all act as resistance levels. These technical lines, which are dynamic, offer points that traders can look to for price reversal, however, the more significant levels have to do with trend lines and the .0000 lines on the chart. Trend lines are the same for everyone as are the.0000 on the chart. Therefore they offer a much greater psychological point that traders have in front of them.

As you look at a chart of your currency pair, draw a line between the highest prices for at least three time periods. If you trade in a 1 hour time frame, go back at least 12 hours to get your price highs. Then continue that line for the next 12 hours forward in time. This will provide you with a price resistance level that may offer an opportunity to profit. Once the level of resistance is touched you can place a sell order and take advantage of the natural retracement. Your protective stop should be placed 5-10 pips above the resistance level and set your profit target based on your money management rules.

This is not a guaranteed way to profit but it does offer a way to take advantage of the psychological pressures that are prevalent in the market. The most important thing in developing this type of strategy is to make use of the most dominant places that resistance levels can be developed. Finding where these points agree on different time frames will help to you find levels that prices have a harder time breaching.

In conclusion, resistance levels offer traders profit opportunities that they may not have had, based on other factors in the market. Forex trading is a psychological financial field and pressure on traders is mostly perceived pressure as opposed to actual price pressure. Learn to find the tough levels of resistance and you will be able to find ways to profit daily from your Forex trading.

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