What is the best time to buy and sell the market?
Here are the top 3 factors that any trader must be aware of.
1. Moving averages
A lot of traders watch the moving averages for areas of support and resistance. Some use simple moving averages while others prefer exponential moving averages which are weighted towards more recent activity in the market. I can’t say that this is a reliable enough trading method for me to want to adapt it as my means of identifying support and resistance.
I do like to watch a 12 period exponential moving average (12ema) on any time frame though. It seems to act well as a region of balance between buyers and sellers and price activity does tend to hover around this moving average a great deal of the time. Any market that has traded well away from the 12ema though is probably getting ripe for a turn. It’s also very common to see a market retrace to the 12ema line then continue in the direction of the trend. Any strong breaks through the 12ema usually mean the trading will continue in that same direction.
2. Fibonacci based retracements
It’s part of every trader’s arsenal to know about Fibonacci based retracements. The most notable are the 38.2%, 50% and 61.8% retracement levels although there are other retracement levels that are not based on Fibonacci such as 86.6% which is derived from the square root of three. We can find support at areas of old resistance and vice versa. This happens fairly often so it needs to be on a trader’s radar. It’s not a guarantee of course that all areas of support will become resistance but add this concept to your awareness when reading a chart. The past tends to repeat itself in one variant or another.
3. Gaps in the market
While not necessarily areas of support and resistance, gaps in the market can mark important points on a chart. There is a well known phenomena that gaps on a chart will sooner or later be filled. This simply means that price action will often trade into the area of the gap, effectively closing or filling it. The warning here is that sooner or later may mean much later so don’t expect this phenomena to be reliable on your chosen time frame. Failed attempts at closing the gap signal market weakness and you can expect a strong move in the opposite direction.
Probably due to the fact that we chart market activity in graphical format we are somewhat trained to think of support and resistance as being horizontal or parallel to the time axis. Support and resistance can also be seen in other ways if we break out of the horizontal mind-set. For example support and resistance are often found on the drawing tool known as Andrew’s Pitchfork. Also known as the median line this tool was reputed to have been the instrument whereby its creator amassed a large fortune from trading.
A forex trader’s best weapon is the long and diligent study of market behavior with particular emphasis on analyzing and forecasting where probable future areas of support and resistance may lie. Good luck and happy trading.
Article Support and Resistance in the Forex Markets is by BRUCE WILSON