When placing support and resistance levels on a currency pair, start off with the monthly time frame. Then move down to lower time frames consecutively. After the monthly, you will move to the weekly, daily, then 4H. You want to look for areas where price bounced on both sides, from the topside and from the downside.
We are going to be using the line chart to place these levels so that we can better see the closing prices of the candles. When placing these, place them in areas where there is a major reversal.
There will be three types of bounce you’re going to be looking for when placing support and resistance.
Using the line chart, look for areas where price “touch”, “gap”, or “overlap”. Once you find the areas, you will place a horizontal line between them to represent the support/resistance.
Go to the monthly time frame and switch to the line chart. Place horizontal lines between areas where price touched, gapped, or overlapped. Label them as “MONTHLY”.
When placing these levels, place them near the current relevant price. You don’t need to be placing them around areas where price will take a very long time to reach it.
Looking at the chart above, price bounced back and forth between these monthly levels.
When we switch back to the candlestick chart, it becomes clear how price reacted to these levels.
Next thing we are going to do is place rectangles around the monthly levels. This is going represent the monthly zones so that when you go into the lower timeframe, you will clearly see whether or not you are in a monthly area.
Moving down into the weekly time frame, we’ll apply the same principle. Place horizontal lines around areas where price gapped, touched, or overlapped. Label them as “WEEKLY”.
Switching back to the candlestick chart, we can see how price reacted to these weekly levels.
As we go on to lower timeframes, we will keep applying the same principles.
Now as you get into the 1H chart, you will see these levels very clearly now. These levels will help you find areas of reversal where you can place your trades.
Later on the course, we will talk about how we can trade these support and resistance zones.