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The Sensible Guide to Forex: Safer, Smarter Ways to Survive and Prosper from the Start by Cliff Wachtel

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CHAPTER 4

Technical Analysis

Types of Support and Resistance (S/R)

Now you understand some basics about charts, support and resistance (s/r), and risk and money management (RAMM). You're ready to get to the meat of TA and learn the tools to identify the likely support area at which to enter or open a position and the likely resistance zone at which to exit or close it.

This chapter will cover:

  • Price levels
  • Trends and trend lines
  • Fibonacci retracements
  • Bollinger Bands (BBs) in range-bound markets
  • Introduction to Japanese candle chart patterns
  • Introduction to Western chart patterns
  • The importance of having multiple s/r indicators

I have selected the following tools and indicators of s/r based on importance and ease of use. The idea is to give you a powerful toolkit you can learn quickly and easily.

Though opinions about the value of TA vary, most would agree it's necessary to know if you're buying low or selling high. And though many disparage TA, I've yet to meet a serious trader or investor who doesn't use it. The main reasons include:

  • Much of it makes intuitive sense. Some of it doesn't, but works anyway. For example, the Fibonacci retracements we will discuss further on are based on a common ratio found in nature, music, and other fields of study. Why it applies to price behavior is unclear, but it does, so look at it like electricity. You use it even though you don't understand how it works.
  • Used properly, it improves your performance.
  • It is so widely used that you need ...

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