Forex Focus  |  AUG 2007

Forex Focus by James Chen

Forex Focus by James Chen Support & Resistance Precision In Forex Currency markets tend to follow support & resistance levels. Use those levels to identify entries and exits, and to apply risk management. Many foreign exchange traders rely on the accuracy of support & resistance levels so evident on currency price charts. Some of these traders will eschew the use of mathematically derived indicators or back-tested systems as primary trade decision tools, preferring instead to allow their manually drawn lines to dictate entries and exits. BACK TO BASICS There is much to be said for this back-to-the-basics brand of technical analysis. Even a glance at a long-term currency chart will substantiate that key price levels appear to be remarkably well-respected time and again. This applies to both diagonally drawn uptrend and downtrend lines, as well as to horizontal support & resistance lines. Central to these principles of support/resistance (S/R) within the greater context of technical analysis is the premise that a truly valid S/R level will eventually be tested on both sides; support will become resistance and resistance will become support. A line that is tested on both sides often proves to be strong and stable and will frequently sustain its validity for an extended period of time, as support or as resistance.

by James Chen, CTA