Horizontal Line Forex Trading Strategy
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Learning how to use horizontal lines effectively in the forex
market is an essential aspect of becoming a great technical chart
trader, this forex trading technique is more commonly known as support
and resistance trading. There a few different instances in which you can
make great use of the horizontal line forex trading strategy. We will
discuss each of these with chart examples in this article:
• Trading bounces from horizontal levels
Strong horizontal support or resistance areas provide high probability entry or exit areas for you to keep an eye on when trading the forex market. Almost any candlestick reversal bar or other price pattern, is significantly strengthened if it occurs at a strong horizontal line that has proved to be a significant support or resistance area in the past.
In the chart example below we are looking at the daily chart of gold. Notice the obvious horizontal level that formed in this market, the horizontal line is valid because it was tested two times before the signal occurred, indicating it was a significant level. Finally, we can see that a well formed candlestick reversal setup, or pin bar, formed that showed clear rejection of this horizontal support area. One other note on trading bounces of horizontal lines like this; often times these horizontal lines will switch from support to resistance or vice versa, we can see evidence of this in the chart below as well.
• Horizontal line trading ranges
Another excellent way to implement horizontal lines into your forex trading techniques is by trading within trading ranges. Markets consolidate often, therefore, it is essential that you know how to make use of this consolidation by learning to trade off of horizontal support or resistance areas that form when a market consolidates.
In the chart example below we are looking at the daily EURJPY, which entered into a long trading range earlier this year between about 138.50/139.00 and 127.00. These areas would have been very high probability horizontal line areas to watch for trading signals to form at. Since markets consolidate just as much, if not more, than they trend, understanding the forex strategy of using horizontal lines to trade within trading ranges is very important to your overall forex trading arsenal.
• Breakouts of horizontal lines
One other excellent usage of horizontal line support or resistance levels is to use them to trade breakouts. The forex market is notorious for giving rise to some very powerful breakout moves. Breakouts occur following a period of consolidation, all markets eventually breakout of consolidation, it is a matter of timing that is the key to determining whether or not you trade breakouts successfully.
In order to compensate for the many “false-breakouts” that often occur within the forex market, there is a very good forex trading strategy you can use when trading breakouts. First, wait for the initial breakout to occur but do not trade it, instead wait and see what happens, if the market genuinely breaks out it will close outside of its recent range. Next, wait for a pullback to the breakout level and then enter in the direction of the initial breakout, this way you can make sure that you are at least trading from a confluent level and have avoided the dreaded “false breakout”.
In the chart example below we are looking at the AUDJPY 4hr chart, we can see a period of consolidation and then a breakout to the downside of this consolidation. Notice that there were actually 2 re-tests of the horizontal line support level where the initial breakout occurred, both of these re-tests were extremely high-probability entry scenarios.
For more information on forex trading strategies check out this free forex trading strategies introduction course.
• Trading bounces from horizontal levels
Strong horizontal support or resistance areas provide high probability entry or exit areas for you to keep an eye on when trading the forex market. Almost any candlestick reversal bar or other price pattern, is significantly strengthened if it occurs at a strong horizontal line that has proved to be a significant support or resistance area in the past.
In the chart example below we are looking at the daily chart of gold. Notice the obvious horizontal level that formed in this market, the horizontal line is valid because it was tested two times before the signal occurred, indicating it was a significant level. Finally, we can see that a well formed candlestick reversal setup, or pin bar, formed that showed clear rejection of this horizontal support area. One other note on trading bounces of horizontal lines like this; often times these horizontal lines will switch from support to resistance or vice versa, we can see evidence of this in the chart below as well.
• Horizontal line trading ranges
Another excellent way to implement horizontal lines into your forex trading techniques is by trading within trading ranges. Markets consolidate often, therefore, it is essential that you know how to make use of this consolidation by learning to trade off of horizontal support or resistance areas that form when a market consolidates.
In the chart example below we are looking at the daily EURJPY, which entered into a long trading range earlier this year between about 138.50/139.00 and 127.00. These areas would have been very high probability horizontal line areas to watch for trading signals to form at. Since markets consolidate just as much, if not more, than they trend, understanding the forex strategy of using horizontal lines to trade within trading ranges is very important to your overall forex trading arsenal.
• Breakouts of horizontal lines
One other excellent usage of horizontal line support or resistance levels is to use them to trade breakouts. The forex market is notorious for giving rise to some very powerful breakout moves. Breakouts occur following a period of consolidation, all markets eventually breakout of consolidation, it is a matter of timing that is the key to determining whether or not you trade breakouts successfully.
In order to compensate for the many “false-breakouts” that often occur within the forex market, there is a very good forex trading strategy you can use when trading breakouts. First, wait for the initial breakout to occur but do not trade it, instead wait and see what happens, if the market genuinely breaks out it will close outside of its recent range. Next, wait for a pullback to the breakout level and then enter in the direction of the initial breakout, this way you can make sure that you are at least trading from a confluent level and have avoided the dreaded “false breakout”.
In the chart example below we are looking at the AUDJPY 4hr chart, we can see a period of consolidation and then a breakout to the downside of this consolidation. Notice that there were actually 2 re-tests of the horizontal line support level where the initial breakout occurred, both of these re-tests were extremely high-probability entry scenarios.
For more information on forex trading strategies check out this free forex trading strategies introduction course.
