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On chart above, we’ve plotted three different SMAs on the 1-hour chart of USD/CHF. As you can see, the longer the SMA period is, the more it lags behind the price. Notice how the 62 SMA is farther away from the current price than the 30 and 5 SMAs.

This is because the 62 SMA adds up the closing prices of the last 62 periods and divides it by 62. The longer period you use for the SMA, the slower it is to react to the price movement. The SMAs in this chart show you the overall sentiment of the market at this point in time.

Here, we can see that the pair is trending. Instead of just looking at the current price of the market, the moving averages give us a broader view, and we can now gauge the general direction of its future price. With the use of SMAs, we can tell whether a pair is trending up, trending down, or just ranging.

There is one problem with the simple moving average: they are susceptible to spikes. When this happens, this can give us false signals. We might think that a new currency trend may be developing but in reality, nothing changed.

Like every indicator, a moving average indicator is used to help us forecast future prices. By looking at the slope of the moving average, you can better determine the potential direction of market prices. As we said, moving averages smooth out price action. There are different types of moving averages and each of them has their own level of “smoothness”.
Generally, the smoother the moving average, the slower it is to react to the price movement. The choppier the moving average, the quicker it is to react to the price movement. To make a moving average smoother, you should get the average closing prices over a longer time period.
In this section, we first need to explain to you the two major types of moving averages:
1. Simple
2. Exponential
I’ll also teach you how to calculate them and give the pros and cons of each. Just like in every other lesson, you need to know the basics first!
Calculating the Simple Moving Average (SMA)
If you plotted a 5 period simple moving average on a 1-hour chart, you would add up the closing prices for the last 5 hours, and then divide that number by 5. Voila! You have the average closing price over the last five hours! String those average prices together and you get a moving average!
Now, as with almost any other forex indicator out there, moving averages operate with a delay. Because you are taking the averages of past price history, you are really only seeing the general path of the recent past and the general direction of “future” short term price action.
Here is an example of how moving averages smooth out the price action.

Moving Averages?
A moving average is simply a way to smooth out price action over time. By “moving average”, we mean that you are taking the average closing price of a currency pair for the last ‘X’ number of periods. On a chart, it would look like this:

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What’s the lesson here?

While Fibonacci retracement levels give you a higher probability of success, like other technical tools, they don’t always work. You don’t know if price will reverse to the 38.2% level before resuming the trend.

Sometimes it may hit 50.0% or the 61.8% levels before turning around. Heck, sometimes price will just ignore Mr. Fibonacci and blow past all the levels. Remember, the market will not always resume its uptrend after finding temporary support or resistance, but instead continue to go past the recent Swing High or Low.

Another common problem in using the Fibonacci retracement tool is determining which Swing Low and Swing High to use. People look at charts differently, look at different time frames, and have their own fundamental biases. The bottom line is that there is no absolute right way to do it, especially when the trend on the chart isn’t so clear. Sometimes it becomes a guessing game. That’s why you need to hone your skills and combine the Fibonacci retracement tool with other tools in your forex toolbox to help give you a higher probability of success. The key Fibonacci retracement levels to keep an eye on are: 23.6%, 38.2%, 50.0%, 61.8%, and 76.4%.

And the levels that seem to hold the most weight are the 38.2%, 50.0%, and 61.8% levels, which are normally set as the default settings of most forex charting software

Remember that forex traders view the Fibonacci retracement levels as potential support and resistance areas. And because these levels tend to be closely watched by many, many forex traders, the support and resistance levels may become a self-fulfilling prophecy.
Similar to the retracement levels, the key Fibonacci extension levels are: 38.2%, 50.0%, 61.8%, as well as the 100%, 138.2% and 161.8% extensions.

Traders use the Fibonacci extension levels as potential support and resistance areas to set profit targets. Again, since so many forex traders are watching these levels and placing buy and sell orders to take profits, these levels can often become the end of the trend move due to self-fulfilling expectations.


IS ANYONE STILL FOLLOWING ?

Now, if you really did put an order at that level, not only would your dreams go up in smoke, but your account would take a serious hit if you didn’t manage your risk properly!
Take a look at what happened.

It turns out that that Swing Low was the bottom of the downtrend and market began to rally above the Swing High point.

Fibonacci Retracement is NOT Foolproof

Earlier in our study, we said that support and resistance levels eventually break. Well, seeing as how Fibonacci levels are used to find support and resistance levels, this also applies to Fibonacci! Fibonacci retracements do NOT always work! They are not foolproof. Let’s go through an example when the Fibonacci retracement tool fails.

Below is a 4-hour chart of GBP/USD. Here, you see that the pair has been in downtrend, so you decided to take out your Fibonacci retracement tool to help you spot a good entry point. You use the Swing High at 1.5383, with a swing low at 1.4799.
You see that the pair has been stalling at the 50.0% level for the past couple of candles. You short at market and start day dreaming.

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Let’s take a look at what happened next.

The market did try to rally, stalled below the 38.2% level for a bit before testing the 50.0% level. If you had some orders either at the 38.2% or 50.0% levels, you would’ve made some mad pips on that trade.

In these two examples, we see that price found some temporary forex support or resistance at Fibonacci retracement levels. Because of all the people who use the Fibonacci tool, those levels become self-fulfilling support and resistance levels.

One thing you should take note of is that price won’t always bounce from these levels. They should be looked at as areas of interest.

For now, there’s something you should always remember about using the Fibonacci tool and it’s that they are not always simple to use! If they were that simple, traders would always place their orders at Fibonacci retracement levels and the markets would trend forever.


Any Question(s)?

Downtrend
Now, let’s see how we would use the Fibonacci retracement tool during a downtrend. Below is a 4-hour chart of EUR/USD.

As you can see, we found our Swing High at 1.4195 on January 25 and our Swing Low at 1.3854 a few days later on February 1. The retracement levels are 1.3933 (23.6%), 1.3983 (38.2%), 1.4023 (50.0%), 1.4064 (61.8%) and 1.4114 (76.4%).
The expectation for a downtrend is that if price retraces from this low, it could possibly encounter resistance at one of the Fibonacci levels because traders who want to play the downtrend at better prices may be ready with sell orders there.

Now, the expectation is that if AUD/USD retraces from the recent high, it will find support at one of those Fibonacci retracement levels because traders will be placing buy orders at these levels as price pulls back. Now, let’s look at what happened after the Swing High occurred.

Price pulled back right through the 23.6% level and continued to shoot down over the next couple of weeks. It even tested the 38.2% level but was unable to close below it.
Later on, around July 14, the market resumed its upward move and eventually broke through the swing high. Clearly, buying at the 38.2% Fibonacci level would have been a profitable long term trade!

Fibonacci Trading

We will be using Fibonacci ratios a lot in our trading. Fibonacci is a huge subject and there are many different Fibonacci studies with weird-sounding names but we’re going to stick to two: retracement and extension.

Leonardo Fibonacci was a famous Italian mathematician. He had a moment when he discovered a simple series of numbers that created ratios describing the natural proportions of things in the universe. The ratios arise from the following number series: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144…

This series of numbers is derived by starting with 0 followed by 1 and then adding 0 + 1 to get 1, the third number. Then, adding the second and third number (1 + 1) to get 2, the fourth number, and so on. After the first few numbers in the sequence, if you measure the ratio of any number to the succeeding higher number, you get .618. For example, 34 divided by 55 equals .618.If you measure the ratio between alternate numbers you get .382. For example, 34 divided by 89 = 0.382 and that’s as far as into the explanation as we’ll go. These ratios are called the “golden mean”.

Fibonacci Retracement Levels
0.236, 0.382, 0.500, 0.618, 0.764

Fibonacci Extension Levels
0, 0.382, 0.618, 1.000, 1.382, 1.618

You won’t really need to know how to calculate all of this. Your charting software will do all the work for you.However, it’s always good to be familiar with the basic theory behind the indicator so you’ll have the knowledge.

Traders use the Fibonacci retracement levels as potential support and resistance areas. Since so many traders watch these same levels and place buy and sell orders on them to enter trades or place stops, the support and resistance levels tend to become a self-fulfilling prophecy.

Traders use the Fibonacci extension levels as profit taking levels. Again, since so many traders are watching these levels to place buy and sell orders to take profits, this tool tends to work more often than not due to self-fulfilling expectations.

Finding Fibonacci Retracement Levels
In order to find these Fibonacci retracement levels, you have to find the recent significant Swing Highs and Swings Lows. Then, for downtrends, click on the Swing High and drag the cursor to the most recent Swing Low.For uptrends, do the opposite. Click on the Swing Low and drag the cursor to the most recent Swing High.

Now, let’s take a look at some examples on how to apply Fibonacci retracements levels to the currency markets.

Uptrend

Here we plotted the Fibonacci retracement levels by clicking on the Swing Low at .6955 on April 20 and dragging the cursor to the Swing High at .8264 on June 3. The software magically shows you the retracement levels.As you can see from the chart, the Fibonacci retracement levels were .7955 (23.6%), .7764 (38.2%), .7609 (50.0%), .7454 (61.8%), and .7263 (76.4%).
This is a daily chart of AUD/USD.

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The Conservative Way
Imagine this hypothetical situation: you decided to go long EUR/USD hoping it would rise after bouncing from a support level. Soon after, support breaks and you are now holding on to a losing position, with your account balance slowly falling.

Do you…

A. Accept defeat, get the heck out, and liquidate your position? Or
B. Hold on to your trade and hope price rises up again?
If your choice is the second one, then you will easily understand this type of forex trading method. Remember, whenever you close out a position, you take the opposite side of the trade. Closing your EUR/USD long trade at or near breakeven means you will have to short the EUR/USD by the same amount.

Now, if enough selling and liquidation of losing positions happens at the broken support level, price will reverse and start falling again. This phenomenon is the main reason why broken support levels become resistance whenever they break.As you would’ve guessed, taking advantage of this phenomenon is all about being patient. Instead of entering right on the break, you wait for price to make a “pullback” to the broken support or resistance level and enter after the price bounces.


A few words of caution… IN FOREX, THIS DOES NOT HAPPEN ALL THE TIME. “RETESTS” OF BROKEN SUPPORT AND RESISTANCE LEVELS DO NOT HAPPEN ALL THE TIME. THERE WILL BE TIMES THAT PRICE WILL JUST MOVE IN ONE DIRECTION AND LEAVE YOU BEHIND. BECAUSE OF THIS, ALWAYS USE STOP LOSS ORDERS AND NEVER EVER HOLD ON TO A TRADE JUST BECAUSE OF HOPE.

The Break
In a perfect world, support and resistance levels would hold forever. In a perfect forex trading world, we could just jump in and out whenever price hits those major support and resistance levels and earn loads of money. The fact of the matter is that these levels break often.
So, it’s not enough to just play bounces. You should also know what to do whenever support and resistance levels give way!There are two ways to play breaks in forex trading: the aggressive way or the conservative way.

The Aggressive Way
The simplest way to play breakouts is to buy or sell whenever price passes convincingly through a support or resistance zone. The key word here is convincingly because we only want to enter when price passes through a significant support or resistance level with ease.

Types of Trends[

There are three types of trends:
1. Uptrend (higher lows)
2. Downtrend (lower highs)
3. Sideways trends (ranging)

Here are some important things to remember using trend lines in forex trading:

 It takes at least two tops or bottoms to draw a valid trend line but it takes THREE to confirm a trend line.
 The STEEPER the trend line you draw, the less reliable it is going to be and the more likely it will break.
 Like horizontal support and resistance levels, trend lines become stronger the more times they are tested.
 And most importantly, DO NOT EVER draw trend lines by forcing them to fit the market. If they do not fit right, then that trend line isn’t a valid one!
How to Trade Support and Resistance
Now that you know the basics, it’s time to apply these basic but extremely useful technical tools in your trading. Because we want to make things easy to understand, we have divided how to trade support and resistance levels into two simple ideas: the Bounce and the Break.

The Bounce
As the name suggests, one method of trading support and resistance levels is right after the bounce.Many retail forex traders make the error of setting their orders directly on support and resistance levels and then just waiting to for their trade to materialize. Sure, this may work at times but this kind of trading method assumes that a support or resistance level will hold without price actually getting there yet.

You might be thinking, “Why don’t I just set an entry order right on the line? That way, I am assured the best possible price.”When playing the bounce, we want to tilt the odds in our favor and find some sort of confirmation that the support or resistance will hold.

Instead of simply buying or selling right off the bat, wait for it to bounce first before entering. By doing this, you avoid those moments where price moves fast and break through support and resistance levels. From experience, catching a falling knife when trading forex can get really bloody…

Trend Lines

Trend lines are probably the most common form of technical analysis in forex trading. They are probably one of the most underutilized ones as well.If drawn correctly, they can be as accurate as any other method. Unfortunately, most forex traders don’t draw them correctly or try to make the line fit the market instead of the other way around.

In their most basic form, an uptrend line is drawn along the bottom of easily identifiable support areas (valleys). In a downtrend, the trend line is drawn along the top of easily identifiable resistance areas (peaks).To draw forex trend lines properly, all you have to do is locate two major tops or bottoms and connect them.

Here are trend lines in action! Look at those waves below!

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Good evening.

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Sell GBPUSD at 1.4236, tp 1.4198, sl 1.4260

Sell USD/JPY 113.05, tp 112.55, sl 113.30

Trade at your own risk.

Hello Fellas, I am very sorry to have been off this thread in recent time,'twas due to loads of work at hand. Resumption has taken place now .

Other interesting tidbits about forex support and resistance:
 When the price passes through resistance, that resistance could potentially become support.
 The more often price tests a level of resistance or support without breaking it, the stronger the area of resistance or support is.
 When a support or resistance level breaks, the strength of the follow-through move depends on how strongly the broken support or resistance had been holding.

With a little practice, you’ll be able to spot potential forex support and resistance areas easily. In the next lesson, we’ll teach you how to trade diagonal support and resistance lines, otherwise known as forex trend lines.

Plotting Forex Support and Resistance
One thing to remember is that support and resistance levels are not exact numbers.Often times you will see a support or resistance level that appears broken, but soon after find out that the market was just testing it. With candlestick charts, these “tests” of support and resistance are usually represented by the candlestick shadows.


Notice how the shadows of the candles tested the 1.4700 support level. At those times it seemed like the market was “breaking” support. In hindsight we can see that the market was merely testing that level.

First of all,I want apologize for being off this thread,it was due to loads of work on hand .

Forex Support and Resistance
Support and resistance is one of the most widely used concepts in forex trading. Strangely enough, everyone seems to have their own idea on how you should measure forex support and resistance.Let’s take a look at the basics first.

L[b]ook at the diagram below[/b]. As you can see, this zigzag pattern is making its way up (bull market). When the forex market moves up and then pulls back, the highest point reached before it pulled back is now resistance.As the market continues up again, the lowest point reached before it started back is now support. In this way, resistance and support are continually formed as the forex market oscillates over time. The reverse is true for the downtrend.

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