Use the Stochastic with support and resistance levels


7 min read

Most professional traders agree that Forex requires setting targets in terms of stop-loss and profit, which often have greater prominence than the entry points themselves. Due to the fact that currency pairs tend to perform within certain support and resistance targets, useful stop-loss and take profit targets must be tracked within those ranges.

The basis of the technique consists in the use of the stochastic for the inputs later and in favor of the trend. Trends can be close, in the short or long term, depending on your personal style, on the time intervals you want to work on and on the detected entry points. The key is to trade up when prices rise and fall when prices fall.

Entry techniques

To find an entry point, start with the daily chart and draw the support and resistance lines. The two lines closest to the price of the asset are those on which you will have to concentrate. Then move on the hourly chart and verify the presence of other support and resistance lines to be able to trace that are included within the long-term lines drawn on the daily chart. Once you've done this, drop down to 30 minutes, 10 or 5 minutes according to your preferences and try to identify any additional levels of support and resistance.

As a reference, take a moment to study the following graphs. Note how the stochastic oscillator (bottom) completes the support and resistance lines by providing signals of purchase and sale. Also, pay attention to the differences between the daily and the hourly chart.

The daily chartThe hourly chart

Signals are generated when the price action passes through a support or resistance line and confirms the support or resistance at the level of one of the lines you have drawn. To avoid false or weak input signals, also apply the rule to follow the trend, take into account the inputs that follow the trend direction. For example, if prices show an uptrend, they may temporarily fall below a line to test their support. The crossing of the line would therefore be a false signal, while a new crossing upwards would be a valid signal. Learning to identify false signals is a skill that repays a lot in the long term.

In terms of strength and duration, you might consider maintaining a position depending on the line on which your operation is based. A support or resistance line drawn on the hourly chart will not produce the same effect as a plot on the daily chart. The daily charts offer the best signals and may suggest movements intended to last for days, weeks or even months. The hourly charts are in the middle and can also produce strong signals, however they will tend to indicate movements intended to last a few hours, day or at most a few weeks. The shorter time intervals are also the weaker ones and will provide signals with a much shorter duration. As always, keep a watchful eye to identify possible breakthroughs when working with support and resistance lines.

How to read profits

Take profit targets consist of the next higher or lower support or resistance line. If the trend is bullish and prices move upward from a support line, the next resistance target will be your profit target. When the price reaches this level, or if it starts showing signs of arrest near it, it is advisable to fix the profits. The stop-loss function can easily be set to -5% of your position. This will allow the asset a certain freedom to float before it climbs, but will not cause significant damage to the account in the event of a counter movement.

When you are preparing your next operation, remember that the IQ Option platform allows you to also set take profit levels, which can be defined before opening the operation. However, the most prepared traders will close their positions once a specific price target has been reached as support or resistance. Using support and resistance lines is a perfect way to improve your trading experience. The more you work on your trading skills and techniques, the more opportunities you will have to seize a unique opportunity. Why not give the titles a chance?

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This article does not represent an investment advice. Any reference to past movements or price levels is informative and based on external analyzes, we do not provide any guarantee that such movements or levels may reoccur in the future. In accordance with the requirements set by the European Securities and Markets Authority (ESMA), trading with binary and digital options is only available to customers categorized as professional clients.

GENERAL INFORMATION ON RISKS:

CFDs are complex instruments and carry the high risk of losing money quickly due to the leverage effect. 76% of retail investor accounts lose money when trading with CFD through this provider. You should make sure you understand how CFDs work and if you can afford to take the high risk of losing your money.



Source: IQOption blog 2018-11-30 13:26:03


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