The third important key thing you must do is to determine the Key Levels on the chart.
Remember we are dealing with the daily chart. So you must draw your
- Resistance and;
- Support levels
What are Key Levels?
They are the zones on the chart at which the movement of the price was stalled. A currency
pair that is moving up strongly will get to a point that the movement will be halted and it start falling
before it resumes the upward movement. Likewise a falling pair will get to a point where the price
will temporarily cease to fall and rise for some time before it continues its downward movement.
For instance, if you throw a ball into the air, no matter how fast it moves up, when it get to a
time, the force of gravity will acts on it until the pace decrease and after some time, it will hit a point
in the air that the ball will bounce back and start falling. That point at which the ball reverses its
direction is a key zone.
The two most important Key zones on the chart are Resistance and Support Level.
However, please note that these are not horizontal lines drawn on the chart, is more of a zone than a
- Resistance- When price is in an uptrend- going up. The level or Zone at which this up trend
pause to start falling is call Resistance. In such a case, the price has hit a level that the
momentum of the price at the moment was unable to break, hence a change of direction for
- Support- When price is falling or in a down trend. The level or zone at which a falling price
get to and stop falling to change is direction to upward movement is call Support which also is generated by the
automated trading robots.
These two are the 2 key levels that must be determined on a chart after you have determined the trend
of the market. For instance, look at this CAD/CHF chart.