Methods to Detect Forex Reversal Levels

When you start to realise that Forex trading is more about odds then certainties, you can then begin to position your trades to target more wins than losses and, as such, enjoy more success. You can achieve these objectives by using a number of methods, such as the following.

The first one will involve you examining the weekly and monthly charts searching for tops and bottoms of currency pairs of interest. In particular, you need to locate those against which price has bounced a number of times.

Once located, you then need to join the peaks and troughs creating the resistance and support lines for the currency pairs in question. These lines offer excellent entry opportunities when rebounds occur especially if you can confirm these reversals by detecting additional evidence as well.

Identifying Forex reversal levels

A second method is to use research to help you identify reversal levels by locating important psychological levels for your currency pairs of interest e.g. 1.5000 for EURUSD. As these tops and bottoms have profound mental effects on traders, they also provide excellent opportunities for new trades.

However, if you attempt to do this, always check historical data and confirm that the levels held for a number of times previously. Again, you need to confirm signs of reverse momentum which you can do by setting your entry point about 20 pips back in the direction that you expect the price to reverse.

When you do use levels for the reasons described above, do take into consideration that price may actually break though this time even after activating your new trade. However, many times this action could just be a fakeout in which case price will eventually reverse into your desired direction. To protect yourself from fakeouts, a good strategy is to place your stop-loss about 100 pips on the other side of the level.

Do not, however, use stops larger than 100 pips because you could suffer a substantial loss should price continue to breakout and not reverse into your desired direction.

In addition, many experts advise that you should move your stop to breakeven as soon as you have achieved a profit of 50 pips. This action will then enable you to enjoy risk-free trading as well as still providing your trade room to breathe.

If you are fortunate to find yourself in such envious positions of trading risk-free, then you must adopt a policy of letting your trades run in order that you can rake in those big profits.