You have to read a lot about the support and resistance level in trading. Those who are new to the Forex trading profession, never understand the importance of the key trading zone. The naïve traders in Singapore are biased with custom made indicators and EAs. They consider it the Holy Grail in the trading profession. Load the best indicators in a demo platform and try to make a profit regularly. We are 100% sure you will lose money like the majority of traders. Indicators and EAs should be considered as your helping tools. You have to develop the ability to find key trading and trade the market with managed risk. Let’s discuss the five most common mistakes associated with key level trading.
Ignoring the long term trend
You might have the ability to find the key trading zone but this doesn’t mean you will trade against the major trend. Those who are new might not understand the term “Key trading zone”. The key trading zone refers to major support and resistance level. Based on the past market movement, you should determine the position of each trade. Let’s assume the EURUSD pair is in an uptrend. When the price hits a critical resistance level, you should never short the EURUSD pair. Due to past market movement, you have to look for a bullish trade setup at the key demand or support zone.
Using the Fibonacci retracement tool in the lower time frame
Those who use the Fibonacci retracement tools know about the key retracement zone. Most of the time the price tends to favor the trend after testing the 50% or 61.8% retracement zone. If you find these retracement zone based on a small swing or lower time data, you are not going to make a profit in the CFD trading profession. To use the Fibonacci retracement tool, you must learn to use them daily or weekly time frame. Those who think higher time frame trading is boring should develop the patience to improve their skills.
Taking a high risk in each trade
Trading the key trading zone doesn’t garantee you winning trades. No one can say a certain trade will give you “X” amount of profit. The outcome of any trade greatly depends on many factors. Since the outcome is unpredictable, you should limit the risk by using a strict risk management policy. Though you will get frustrated after having a few big losing orders, this is very common. Accept the reality and wait for the next trade setup. Never increase the risks by thinking you are trading the best key levels of certain currency pairs.
Support and resistance level of breaks
Support and resistance levels are not absolute price reversal zones. Based on the global economic factors, the key levels are often breached. Be prepared to lose money from the best signals. Does this mean you will use the aggressive strategy and trade the newly formed trend? Well, the answer greatly depends on your skills. Those who have precise knowledge of fundamental factors can trade the major breakout and make a decent profit. Unless you have extensive skills in fundamental data analysis, you should not trade the breakout.
Price action trading system often fails
Some of you might think that by using the price action signal you can trade the key levels with high risk. Nothing in this world is perfect. Even the professional price action traders have to lose trades regularly. So, if you intend to use the price action confirmation signal to trade with high risk, you do not understand the business. Forex trading is a very complicated process where you have no assurance of making money. It’s more like dealing with the uncertainty based on probability factors and market data analysis. Be ready to accept reality and never hope to win big trades by trading the key zones.