Learn Forex Trading | Trading Strategy

Why you should consider forex (Currency) trading as your primary business?

• In forex trading, you decide when you want to work, how long you want to work, and how much money you want to make (You are the Boss)
• Forex trading requires limited equity and the yield could be unlimited
• You can make money anywhere (as long as you are connected to internet) and anytime (forex market opens 24 hours a day, 5 days a week)
• You can maximize your profit and limit your loss.
• You will have a big probability to become financially freedom by trading forex. All you need to do is read this website for forex tutorial and guide, find your own profitable trading system (or use ours) and repeat making profit by your own trading system.
  

(I found a successful forex trader whose learned forex business by accident, recently he made a lot of money by trading forex, about tens of thousand dollars a month ! and people starting to beg him to manage their money). And this could happen to you ! Start learning forex and make money now !

What do you need to start trading forex ?

• A Personal Computer (and PDA, optional and preferable)
• Stable and high speed internet connection
• Limited equity (for example $1000)
• Reliable, reputable and trusted online forex broker
  

Only these ? Absolutely ! You dont need an office, otherwise you can start your business from home or anywhere else. Even when you are travelling, you still can make money. As simple as that!

What is Forex Trading ?

The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is by far the largest financial market in the world, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions.

The average daily trade in the global forex markets currently exceeds US$ 2 trillion. Retail traders (individuals) are a small fraction of this market and may only participate indirectly through brokers or banks


What is traded in Forex Trading ?

The answer is Currency. Currencies are always traded in pairs, such as EUR/USD, GBP/USD, etc. Why ? Because when you trade forex, you are exchanging 1 currency to another currency simultaneously (buying 1 currency and selling the other at the same instance). You will gain from differences of traded currency price rates. Dont get it ? No problem, I will explain this very soon


When is the time to trade forex ?

Forex can be traded 24 hours a day and 5 days a week. The main trading centers are in London, New York, Tokyo, and Singapore, but banks throughout the world participate. The biggest foreign exchange trading centre is London, followed by New York and Tokyo.
Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session begins, followed by the US session and then back to the Asian session,
excluding weekends

The following approximate market schedule is based on New York local time: japan forex markets open at 19:00 followed by singapore and hong kong that open at 21:00. European markets open in frankfurt at 2:00, while london opens at 3:00. New york forex markets open at 8:00. European markets close at 12:00 and australian markets start again at 18:00.


What are the benefits of forex trading

• Two way opportunities, that means you can earn profit from upward or downward price movement. For example if you buy (go long) and the price moving upward, you will be in profit. and the otherway, if you if you sell (go short) and the price moving downward, you will be in profit
• Extreme liquidity of the market. Forex is the most liquid market in the world, and that means you can buy or sell anytime you want
• Long trading hours, Forex allows you to trade 24 hours a day and 5 days a week (except on weekends).
• Leverage to amplify your profit, you can use a relative small quantity to trade bigger amount (usually from 1:50 up to 1:500) for example you have $100, without leverage your profit is only $0.01 but with 1:100 leverage your profit will be $1. (leverage makes your profit 100 times bigger, this also applies to loss).
• Free of comission, Relative Low Spread Cost, usually online forex brokers offer you comission free trading, no brokerage fee, no exchange fee, and smaller trading transaction cost.
• Flexible Trading Lots, you can trade rather standard lot (100K), mini lot (10K), or even micro lot (1K)
• Automated / Robot Trading, some trading platform such as Metatrader enables automated trading

Factors affecting forex trading

Although exchange rates are affected by many factors, in the end, currency prices are a result of supply and demand forces. Supply and demand factors are constantly shifting, and the price of one currency in relation to another shifts accordingly. No other market encompasses (and distills) as much of what is going on in the world at any given time as foreign exchange.

Supply and demand for any given currency, and thus its value, are not influenced by any single element, but rather by several. These elements generally fall into three categories:

• Economic factors

These include economic policy, disseminated by government agencies and central banks, economic conditions, generallyrevealed through economic reports, and other economic indicators.

Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a
government's central bank influences the supply and "cost" of money, which is reflected by the level of interest rates).

• Political conditions

Internal, regional, and international political conditions and events can have a profound effect on currency markets. For instance, political upheaval and instability can have a negative impact on a nation's economy. The rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Also, events in one country in a region may spur positive or negative interest in a neighboring country and, in the process, affect its currency.

• Market psychology

Market psychology and trader perceptions influence the foreign exchange market in a variety of ways:

1. Long-term trends: Currency markets often move in visible long-term trends. Although currencies do not have an annual growing season like physical commodities, business cycles do make themselves felt. Cycle analysis looks at longer-term price trends that may rise from economic or political trends.
2. "Buy the rumor, sell the fact": This market truism can apply to many currency situations. It is the tendency for the price of a currency to reflect the impact of a particular action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. This may also be referred to as a market being "oversold" or "overbought". To buy the rumor or sell the fact can also be an example of the cognitive bias known as anchoring, when investors focus too much on the relevance of outside events to currency prices.
3. Economic numbers: While economic numbers can certainly reflect economic policy, some reports and numbers take on a talisman-like effect - the number itself becomes important to market psychology and may have an immediate impact on short-term market moves. "What to watch" can change over time. In recent years, for example, money supply, employment, trade balance figures and inflation numbers have all taken turns in the spotlight.
4. Technical trading considerations: As in other markets, the accumulated price movements in a currency pair such as EUR/USD can form patterns that may be recognized and utilized by traders for the purpose of entering and exiting the market, leading to short-term fluctuations in price. Many traders study price charts in order to identify such pattern
   

Forex Fundamental Analysis

What is Forex Fundamental Analysis ?
Fundamental Analysis focuses on key underlying economic and political factors to determine the direction of a currency's value. Fundamentalists predict price movements by interpreting a wide variety of economic information, including news, government-issued indicators and reports, and even rumors. There are a number of fundamental indicators traders may follow that reflect how an economy is changing and gleam insight into Forex market prices to come

How can economic and political news affect currency price movement ? Lets understand this. Actually, news doesnt affect price movement. Only demand and supply affect every price movement. So what is the corelation between news and demand-supply ? As we have known so far, traders usually react against news. (as human nature always make speculative decision for reaction to every thing that happens repeatedly and / or predictable).
In case an economic /politic news is good for a country, its currency value will increase, and the other side, if related news is bad for a country's economy, its currency value will decrease.

News traders usually pay particular attention to economic reports. Why ? Because they are vital barometers that tell us what the economy is up to and more importantly, in what direction it is likely to go in the future. These indicators describe the economic backdrop that will affect corporate earnings, interest rates, and inflation.

Fundamental VS Technical Analysis

Basically, forex traders always use two different approaches to make decisions in forex trading. The first approach is Technical Analysis, and the other one is Fundamental Analysis. But we added 1 more approach which was not included among two approaches above. We call it Logical Analysis.

What does Fundamental, Technical, and Logical Analysis mean ?
Technical Analysis is the art of forecasting price movements through the study of chart patterns, indicator signals, sentiment readings, volume, open interest, and other mathematical analysis to identify trading opportunities.

Fundamental Analysis focuses on key underlying economic and political factors to determine the direction of a currency's value. Fundamentalists predict price movements by interpreting a wide variety of economic information, including news, government-issued indicators and reports, and even rumors. There are a number of fundamental indicators traders may follow that reflect how an economy is changing and gleam insight into Forex market prices to come.

Logical Analysis is an approach to exploit the law of eternal balance in the universe (its like the eternal balance of yin and yang). Forex and every matter in this world are affected by the universe. Hence this approach can be implemented in forex as well. Later we will give you a very profitable trading system to gain an enormous profit based on this method.

Fundamental, Technical, and Logical Analysis. Which one is the best ?
Technical traders usually say that it is impossible to trade on the news, because the market moves so fast. In the other hand, fundamentalists say that only the news move the market and indicator is always a follower.

The big question is what actually moves the forex market? It is trader's expectation and speculation that moves the market! Neither the news nor the graphs move the market. The most dramatic price movements, however, occur when unexpected events happen.

There is another important question you should think of: How much money is traded by fundamentalists, and how much money is traded by technical traders?

We will tell you a little secret in forex industry. Do you know that almost all of big banks, hedge funds, and other big financial institutions trade using Fundamental Analysis? And unfotunately those big financial institutions have the biggest amount of money in the world.

So what is the correlation with forex market? It is very rational and predictable : At the time they open trades (using a large amount of money), the market moves accordingly. What do fundamentals do ? If the news report for a country is better than expected, that country's currency usually gets stronger and moves the price, if it's worse, that currency will be weaker and moves the price to the other way.

Do you know why there is only a small amount of fundamental forex trading e-book taught by forex brokers out there ? This probably has something to do with more profitable nature of fundamental analysis. As you know, some brokers dont like if their customers win. If you win they will lose (they trade against you)

What about technical traders ? It seems that most of technical traders and small traders don't have such a lot of money compared to big financial institutions, even altogether.

For complexity, there are lots of different indicators and timeframes used in technical analysis. At the same moment, each of them are giving different signals.

The conclusion is we prefer to use fundamental analysis compared to technical. Then what about logical analysis ? To be honest, logical analysis the best method to trade forex, as it will give you a constant, reliable, and greatest result almost all the time.

Forex Trading Tips

Trading tips suitable for Technical Traders :
Only use the most common, widely used Trading Indicators and Never trade during important News Accouncement Time.

Trading tips suitable for Fundamental Traders :
Be patient, discipline, use an accurate clock and only trade during important news release.

Forex Tutorial

How Forex Trading Works
As we have told you before, trading forex is exchanging 1 currency to another currency to get benefit from changing price rates of a currency, compared to the other one. For example :

A trader makes a profit by Buying Great Britain Pounds (GBP)


* $10,000 x 1.9800 = US $19,800
(The trader bought GBP of 10000 by selling USD of $19,800)
** $10,000 x 2.0000 = US $20,000
(The trader sold back GBP of 10000 by buying again USD of $20,000)

Why currencies are always traded in pairs ?
While forex is about exchanging a currency to another currency simultaneously (buying 1 currency and selling the other at the same instance) that is why currencies are always quoted in pairs, for example GBP/USD, EUR/USD, etc.

Cross Rate is a currency pair that does not include USD, such as GBP/JPY. Pairs that involve the EUR are called euro crosses, such as EUR/GBP. All other currency pairs (those that don't involve USD or EUR) are generally referred to as cross rates

A currency pair depicts a quotation of two different currencies. The first currency in the pair is the base currency. The second currency in the pair is labelled quote currency or counter currency. Such a quotation depicts how many units of the counter currency are needed to buy one unit of the base currency.

For example the quotation EUR/USD 1.2500, while Euro is the base currency and USD is the quote or counter currency.
It means that one euro is exchanged for 1.25 US dollar. If the quote moves from EUR/USD 1.2500 to EUR/USD 1.2510, the euro is getting stronger and the dollar weaker. On the other hand if the EUR/USD quote moves from 1.2500 to 1.2490 the euro is getting weaker while the dollar is getting stronger.

Try to understand this :

You can also say that if we Buy EUR/USD, it is the same as we are buying EUR (base currency) and at the same time we are selling USD (quote currency).

Buy EUR/USD -> Buy EUR / Sell USD
Sell EUR/USD -> Sell EUR / Buy USD
Here is another example :

Pair EUR/USD:
If you predict that EUR will be stronger than USD, then you can Buy EUR/USD.
If you predict that USD will be stronger than EUR, then you can Sell EUR/USD.

Pair USD/JPY:
If you predict that USD will be stronger than JPY, then you can Buy USD/JPY.
If you predict that JPY will be stronger than USD, then you can Sell USD/JPY.

Forex Quote, Bid, Ask (Offer), and Spread
The quotation of a currency pair usually consists of two prices.
The lower price (Bid) is the price at which a market maker or a brokerage is willing to buy the base currency in exchange for the quote currency (or we could say, bid is the trader's selling price).

The higher price (offer or ask) is the price at which a brokerage is willing to sell the base currency in exchange for the quote currency (or we could say, offer or ask is the trader's buying price). So please note that Ask or Offer is always higher than Bid

Please note :
If you open a Buy position (going Long), you will open with offer price, and will have to use bid price while selling it back (liqudating, closing, stop loss, and taking profit)

If you open a Sell position (going Short), you will open with bid price, and will have to use offer price while selling it back (liqudating, closing, stop loss, and taking profit)

Position	Open with	Close (TP */SL **) with
Buy (Long)	Offer Price	Bid Price
Sell (Short)	Bid Price	Offer Price

* TP = Profit Taking price
** SL = Stop Loss price

Spread is the difference between Bid and Ask price.
If the quotation of EUR/USD is 1.2293/1.2296, then the spread is EUR 0.0003 (3 points or pips)
Forex quote example :


What is Long / Short ?
Going Long means you are opening a Buy position in the expectation that the market price will move upward so you will get profit. In order to lock the profit, a trader has to sell back (liquidate or close or settle) what he has bought.

Long position = You open a Buy position and will have to Sell it again later -> Profit if the price (chart) is moving upward
For simplicity you can say Long = Buy.

Going Short means you are opening a Sell position in the expectation that the market price will move downward so you will get profit. In order to lock the profit, a trader has to buy back (liquidate or close or settle) what he has sold.

Short position = You open a Sell position and will have to Buy it again later -> Profit if the price (chart) is moving downward
For simplicity you can say Short = Sell.

Position	Initial Action	Closing Action	Price Moving Up	Price Moving Down
Long	Buy	Sell	Profit	Loss
Short	Sell	Buy	Loss	Profit

What are point (pip) and Contract Size (Lot) ?
A point (pip) is the smallest number in a quotation of a currency. For example if the quotation of EUR/USD is 1.2025, a pip is represented by 0.0001. However, for a different currency such as USD/JPY 116.25, a pip will be 0.01.
In order to calculate the pip value or how much is one pip, you have to know some additional information such as: trading size, leverage used, and of course the actual rate of the pair for which you want to calculate the pip value. We will explain this later.

Contract Size (or Lot) means the smallest traded quantity you use for exchanging currencies. A common size of lots are micro, mini, and standard lot. Almost all forex brokers out there offer mini and standard, while a few of them offer micro lots. The standard lot is equal to $100,000, mini is equal to $10,000, and micro is $1,000.
So if your forex broker offers you a mini lot and standard lot, you can trade in incremental of $10,000 and $100,000. for example : $20,000, $110,000, and so on.

Margin and Leverage Ratio
Margin is a performance bond, or good faith deposit, to ensure against trading losses. Trading currencies on margin lets you increase your buying power.

Leverage ratio is used to specify margin requirement to trade a spesific quantity, always in ratio, for example 1:100, 1:200, 1:500, and so on.

Here is a example:
If you have $1,000 cash in a margin account that allows 1:100 leverage, you could purchase up to $100,000 worth of currency, because you only have to post 1% of the purchase price as collateral. It could be said that to trade $100,000 worth of currency, you only need to have 1% of $100,000 (for 1:100 Leverage) as margin.

You prefer With or Without Leverage ?

Leverage	Margin Requirement	Used Margin (Equity Used)	Traded quantity	Profit
1:1 (no leverage)	100 %	$1,000	$1000	$0.1/pip
1:100	1 %	$10	$1000	$0.1/pip

The above illustation shows the benefit of using leverage. With leverage, you are able to use smaller equity (fund) to trade similar trade quantity compared to the one without leverage. Trade quantity used corresponds to your profit (loss) value as well, that is why leverage will make your profit (loss) greater !

You prefer High or Small Leverage ?

Leverage	Margin Requirement	Used Margin (Equity Used)	Traded quantity	Profit
1:100	1 %	$1,000	$100,000	$10/pip
1:200	0.5 %	$1,000	$200,000	$20/pip
1:500	0.2 %	$1,000	$500,000	$50/pip

As you can see at above illustation, with the same $1000 margin requirement used (actual cash holded by your broker for margin) and using a higher leverage, the profit/pip (or loss/pip) will be greater !

Calculating Forex Profit and Loss

Calculating Profit (Loss) and Pip Value
As we have specified in earlier page, in order to calculate the pip value or how much is one pip, you have to know some additional information such as: trading size (how many lots), leverage used, and the actual rate of the pair for which you want to calculate the pip value

Calculation Formula for currencies with USD as quote currency
(or X/USD such as EUR/USD, GBP/USD, and AUD/USD)

(Selling Price - Buying Price) x lot size x number of lots = Profit / Loss

Example :

1. Buy 3 standard lots EUR/USD at 1.2000
   Sell (liquid) 3 lots EUR/USD at 1.2010
   
   Profit = (1.2010 - 1.2000) x 100.000 x 3 = $300
   
   
2. Sell 1 standard lot GBP/USD at 2.0001
   Buy (liquid) 1 lot GBP/USD at 2.0000
   
   Profit = (1.2001 - 1.2000) x 100.000 x 1 = $10

Simple method :
As you can see from example number 1 and 2, for every standard lot (100K) the profit is $10/pip.

How to calculate profit per pip ? Profit/pip = total profit / total pips

Example number 1 : $300/3 = $10/pip
Example number 2 : $10/1 = $10/pip

Conclusion : (applies for x/USD Pair only !)
For every 1 standard lot, profit (loss) = $10/pip
For every 1 mini lot, profit (loss) = $1/pip
For every 1 micro lot, profit (loss) = $0.1/pip

Calculation Formula for currencies with USD as base currency
(or USD/X such as USD/JPY and USD/CHF)

[ (Selling Price - Buying Price) / Closing (liquidating) Price ] x lot size x number of lots = Profit / Loss

Example :

1. Buy 1 standard lot USD/JPY at 110.00
   Sell (liquid) 1 lot USD/JPY at 110.01
   
   Profit = [ (110.01 - 110.00) / 110.01 ] x 100.000 x 1 = $9.09
   
   

Calculation Formula for mixed currencies (such as EUR/JPY)

[ (Selling Price - Buying Price) / USD/JPY Closing Price] x lot size x number of lots = Profit / Loss

Contoh :

1. Buy 1 standard lot EUR/JPY at 162.70
   Sell (liquid) 1 lot EUR/JPY at 162.71
   USD/JPY closing price of the previous day is 118.10
   
   Profit = [ (162.71 - 162.70) / 118.10 ] x 100.000 x 1 = $8.47
   
   

Please note :
If you open a Buy position (going Long), you will open with offer price, and will have to use bid price while selling it back (liqudating, closing, stop loss, and taking profit)

If you open a Sell position (going Short), you will open with bid price, and will have to use offer price while selling it back (liqudating, closing, stop loss, and taking profit)

Profit Target, Stop Loss, and Trailing Stop
Profit Target is a target point at which you want to liquidate your position in profit automatically, when the market price hits it. This means, you dont have to monitor your open positions all the time, just set a profit target, and once market price hits it, your position will be closed in profit automatically

Stop Loss order ensures a particular position is automatically liquidated at a predetermined price in order to limit potential losses if the market moves against an investor's trade.

• If you open a Buy or Long Position, profit target level should be placed Higher than opening price.
  
• If you open a Sell or Short Position, stop loss level should be placed Lower than opening price.
  
  Example :
  
• Buy (Long) EUR/USD 1.2000 (offer price)
  Profit Target 1.2050 (50 pips profit target, bid price)
  Stop Loss 1.1950 (50 pips stop loss, bid price)
  
  
• Sell (Short) EUR/USD 1.2000 (bid price)
  Profit Target 1.1950 (50 pips profit target, offer price)
  Stop Loss 1.2050 (50 pips stop loss, offer price)

How Trailing Stop Works

Trailing Stop is an kind of stop loss. This function enables you to automatically set stop loss level whenever the profit you got has exceeded the minimum trailing stop level. If the profit has not exceeded minimum trailing stop level, it will not work !
Please keep in mind that trailing stop usually is executed directly from your computer (client software), not your broker's server so it is highly recommended to put a stop loss besides trailing stop.

The objective of trailing stop is to protect your profit if the market moves against your position so the profit will never go anywhere.

If Trailing stop level is set to 10 pips. Right after your position has reached profit more than trailing stop level (more than 10), then the stop loss will be set to 10 pips away from your open position to protect your profit . Lets say you have already got 10 pips profit, then trailing stop will put a stop loss to 0 (10 pips away from open). If your profit is 20, then stop loss will adjust the stop loss to 10 points profit (still 10 pips awa from open).

Example :
Trailing stop = 10 pips, You open a buy position at 1.2000, suddenly price moves to 1.2010, trailing stop set a stop loss at 1.2000 (Break Even). Market keeps moving to 1.2020, trailing stop level will be adjusted to 1.2010 (10 pips profit), and so on.

Forex Pending Stop and Limit Orders

Basic Forex Order Types
There are 3 basic order types to trade currencies. They are called Market Order, Stop and Limit Pending Orders.

Market Order is an order to go Long (Buy) or short (Sell) at the current market price. You can't edit these rates.

Example :
Your trading software shows a quote for GBP/USD is at 1.9996 (bid)/2.0000 (ask). This means you can order a buy position at 2.0000 or you can order a sell position at 1.9996 at the moment.

But if you are willing to place an order at different price, you need to use Stop or Limit Pending Orders.

Stop Pending Order :
There are 2 benefits of using Stop Pending Orders :

• Stop Buy Order is used when you want to Buy above the current market price.
  Example :
  Current price is at 1.2000, and you want to Buy only if the market hits 1.2050. You can set a Stop Buy at 1.2050
  
• Stop Sell Order is used when you want to Sell below the current market price
  Example :
  Current price is at 1.2000, and you want to Sell only if the market hits 1.1950. You can set a Stop Sell at 1.1950

Limit Pending Order :
There are 2 benefits of using Limit Pending Orders :

• Limit Buy Order is used when you want to Buy below the current market price.
  Example :
  Current price is at 1.2000, and you want to Buy only if the market hits 1.1950. You can set a Limit Buy at 1.1950
  
• Limit Sell Order is used when you want to Sell above the current market price
  Example :
  Current price is at 1.2000, and you want to Sell only if the market hits 1.2050. You can set a Limit Sell at 1.2050

How Margin Call Works

What is a Margin Call ?
If the equity balance in your account falls below the margin requirement (available margin becomes zero), a margin call will be executed. Your broker will liquidate your open positions immediately one by one until your margin is enough, to prevent your account from falling into a negative balance.

Available Margin = Your Balance - Used Margin Requirement + Profit (or -Loss)

Example :
You have $1500 in balance, then you open a standard lot of $100,000. Lets say the leverage is 1:100. At this point, your margin requirement is $1000, the rest is your available margin ($500). Available margin is all the money you have to hold losing positions. We can determine that your ability to hold the loss is available margin devided by pip value, or $500 / $10 = 50 pips only !

When things go wrong, and your losing position falls below margin requirement (minus 50 pips) it means your available margin is zero. And before your balance becomes negative, your broker will instantly liquidate the open position. And the margin requirement ($1000) will be credited back to your balance (you get a $500 loss).

Calculating Swap, Interest, Rollover

What is a Swap (Rollover) ?
Swap or Rollover refers to the interest traders may earn or be charged daily, for positions in the spot Forex market. The Spot Forex market accounts for interest on a daily basis. At the end of each trading day at 5:00pm EST, traders will see the rollover charge or income posted (credited). Take USD/JPY in May 2007 for example. At the time the US Dollar earned 5.25% and the Japanese Yen 0.25% interest. A trader that buys this pair would make the differential of 5% on the year by simply holding the position

Forex Order Duration Types

Order Duration Types
GTC (Good Till Cancelled) order will stay in the market until you cancel it. It is usually the default order
GFD (Good For the Day) remains active in the market until closing time of the day (usually at New York Closing Market).
OCO (One Cancels Other), this is a common order and it consists or two orders where if one is filled, the other order is cancelled

Support and Resistance

Support and Resistance are like a floor and ceiling while the price is located between them. The main objective is to help us knowing price trends, chart patterns and determining whether the trend is likely to continue or reverse. Support and Resistance exist because traders have memories. They tend to repeat actions took place in the past.

Support is a price level where buyer's action is strong enough to interfere or reverse a downtrend. (Buyers overcome sellers) It can be said, when a downtrend hits support zone, it bounces and makes a pause or reversal depends on support's strength. Support can be drawn by a horizontal (or near horizontal) line connecting a few price bottoms. Support also helps traders to decide when to buy.

Resistance is a price level where seller's action is strong enough to interfere or reverse an uptrend. (Sellers overcome buyers) It can be said, when an uptrend hits resistance zone, it will go down and makes a pause or reversal depends on resistance's strength. Resistance can be drawn by a horizontal (or near horzontal) line connecting a few price tops. Resistance also helps traders to decide when to sell.

Minor support or resistance causes trends to pause, while major support or resistance causes them to reverse

Factors Affecting Support and Resistance Strength

Factors Affecting Support and Resistance Strength

1. Support or Resistance's Length
   The longer the time or the number of hits it got, the stronger it is. For example, a week's support or resistance creates a minor support or resistance, a month's support or resistance provides an intermediate level support or resistance, while 1 year's range will become a major / strong support or resistance. But you should keep in your mind that there is a point, where these levels are gradually become weaker when they get older. This is caused by fading people memories along with time.
2. Support or Resistance's Height
   The wider support and resistance zone, the stronger it is. A wide congestion zone between support and resistance acts like a higher barrier, and serves as a stronger level. The strength of this zone can be calculated by a percentage of current market value.
3. Support or Resistance's Trading Volume
   The higher the volume in a specific support and resistance zone, the stronger it is. A higher trading volume in a support or resistance zone, it means more traders involved in that zone. This scheme represents a stronger level of support or resistance area.