Support and resistance levels are one of the most common occurrences in the forex market. The fact that so many of them form, means that it’s often quite difficult to find the levels which have a high probability of working out successfully. To try to rectify this problem, and help people take more successful trades from support and resistance levels, I thought that it would be a good idea to today show you the two best places where you are guaranteed to find key support and resistance levels forming in the market.
Location #1 At Big Round Number Prices
One of the best places you can find high probability support and resistance levels, is on and around the big round number prices. The big round number prices are prices in the market which always end with either 500 or 000. The levels you can find situated around these prices have a high probability of causing a large reversal to occur, due to the fact that most of the big reversals you see take place in the market will begin once the price has either almost hit a big round number, or has just moved beyond it.
The blue lines which I’ve marked on the chart using the support and resistance indicator are all big round number prices. You can see that nearly all of the big reversals which taken place since the beginning of January have started either just before the market hit one of the big round number prices, or just after it had penetrated slightly beyond them. The fact that so many of these reversals began when the market was near to the big round number prices, means that the prices themselves and the support and resistance levels found nearby, all have a really high probability of causing the market to reverse.
These six reversals all began when the market was within 100 pips of touching a big round number level. None of them ended up actually touching the level itself, but they did all touch the support or resistance level which was found 100 pips away from the big round number (marked with a green line). If you go on the charts and have a look at this yourself, you’ll see that a large portion of the reversals which take place in the market will begin when the price is within 100 pips of a big round number level.
This small fact means that you can get really good entries into big reversals, just by watching for price action signals to form when the market comes to being within 100 pips of a big round number level.
None of these reversals started after they had touched the big round number itself, they began after the market had moved through the resistance level which was found 100 pips below at 0.76000. If you had marked the big round number along with the two resistance levels found 100 pips away on your chart before the market reached this point, you could have used them as places to watch for entries into short trades, because you know that a large percentage of the reversals which take place in the market will occur when the market is within 100 pips of a big round number level.
Let’s take a look at another one.
Unlike the reversals we’ve just looked at, the two reversals you can see here both started after the market had hit the big round number at 1.12000, instead of at the resistance level found 100 pips above or below.
If you were planning to look for an entry into a trade upon the market returning to one of these resistance levels, what you need to do is watch for a price action pattern to form once the market had managed to spike through one of the levels. A large bearish engulfing candle or bearish pin bar forming would be a good sign the market is likely going to reverse away from the level, as would multiple swing highs forming at similar prices to one another, like the three highs you can see in the image above.
The one thing to remember though, if you do plan on trading the levels using price action patterns, is that you want to see the pattern form on the time-frame you use to take your trades off. Don’t drop down to the lower time-frames to look for entries, like you would do if you were combing support and resistance levels with supply and demand zones, just use the signals that appear on the time-frame you use entering trades.
Location #2 Inside Supply And Demand Zones
Another place you guaranteed to find high probability support and resistance levels is inside supply and demand zones.
You can see that five of the levels I’ve marked formed outside the supply zone and six formed within the zone itself. Notice how the big reversal which ended up causing the up-swing to come to an end, began once it had touched one of the resistance levels seen inside the supply zone ? This is because the levels inside the supply zone have a much higher probability of being successful than the levels seen outside the zone, due to the fact the supply zone was created by the bank traders placing sell trades.
If they planned on making the market move back into the zone to get more sell trades placed, they would do so when it hits one of the levels inside the zone, as they know traders will place their stops losses at the resistance levels in the zone when under the impression a reversal is about to take place.
The black lines you can see I’ve marked are all the support levels which formed inside the demand zone, and the red lines are some of the support levels which formed before the zone was created. You can see that whilst the levels that were created before the zone formed did cause a few small retracements to take place, they did not actually cause a large reversal to begin like one of the support levels inside the demand zone did.
The reason for that, was because the small reversals which formed after the market had hit the support levels seen outside the zone, were created as a result of the bank traders taking profits off their sell trades, not because they were placing buy trades to make the market reverse. The formation of the demand zone is a sign the banks have potentiality got buy trades placed because they want the market to reverse, which means the levels seen inside the zone instantly have a high probability of working out successfully, because if the bank traders have any more trades left to get placed inside the zone, they’ll place them after one of the support levels has been hit.
Knowing which support and resistance levels you should trade will always be difficult, but I think if you start monitoring the levels I’ve shown you how to locate in this article, the success rate of the trades you take from support and resistance levels should increase substantially, and you should be able to get yourself entered into some of the big reversals which often occur from the levels mentioned in this article.
Thanks for reading, please leave any questions in the comment section below.