Questions About Drawing Support & Resistance Zones

I got an email today from a trader that’s been through my free course and had some really good questions, so I thought I’d answer them here in case anyone else had the same questions.

The questions (and answers) are:

1. I assume that drawing the S&R zones is more an art than a science. However, how wide do you look to make them, normally?

The most important thing to remember is that you don’t make them!  They market “makes” them, you just mark them on your chart so you can see them easily.

The sculptor Michelangelo once said “Every block of stone has a statue inside it and it is the task of the sculptor to discover it.”

Along those same lines I’ll say “every Forex chart has support and resistance zones on it, and it’s the task of the trader to discover them.”

So what’s the answer?  The zones should be as wide as they are!  Of course if the zones are too wide then trading them is impossible, but that can’t be helped.  Just stay out of the market or trade another pair if the zones are so wide you can’t get any good trades.

2. How do you draw lines/trade at all when the price is just moving up (like the yen pairs now) as there have been no reversal points? Do you just stay out of the market until it ranges?

Prices move in waves, so there are always reversal points.  And don’t forget about trendlines, which are nothing more than diagonal Support and Resistance.

Here is my current USD/JPY chart, with all the trades I’ve taken on that pair this year.  I’ve taken 5 , and all 5 were good, profitable trades.

usdjpy-2-26-13

I won’t tell you my entry/exit/stoploss levels, because I want you to figure them out for yourself!  If anyone wants to give it a shot leave a comment telling me where you would have put your entry/exit/stoploss for these trades and I’ll review your answers.

3. I understand how you set entry orders for the LWB and inside bar entries. For the outside bar, do you wait for the price to break the high/low of the outside bar?

Yes, I usually place my entry about 5 pips above/below the outside bar.  If it’s a large bar then you may have to skip some trades, since your Risk:Reward ratio will be way too low if the bar is too big.

4. Does your method work with most pairs, or do you feel some are better than others?

Price action trading like this works on all timeframes and on all pairs.  It does get less reliable on smaller timeframes, though, which is why I never trade anything under a 4H chart.  I have around a 75% win rate trading 4H charts.

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