Price Action with Dynamic Support and Resistance

In my previous article Trading Key Levels with Price Action, the main topic discussed was using a price action signal off these key event areas to enter the market. These key event areas are also know as support and resistance levels and are marked by horizontal lines drawn across bar highs and bar lows or near the same level. The other category is the dynamic or moving support and resistance levels which are marked by moving averages.

There are several different types of moving averages (MAs) in use by Forex traders. In fact, moving averages are the most common technical indicator across all financial markets, including the Forex .They are called "moving" because each new chart period is included in the calculation, while the oldest period is discarded. This has the effect of the average moving along as time passes and the chart develops. The indicator I use mostly is the EMA. The main reason that early chartists developed the exponential moving average was that they felt the SMA was too reliant on old data, and too slow to react to recent price action, so they devised a way to give the most weight to the most recent price action, and to let the weight taper off as you move back through time on the chart. I'm sure you asking what values should I use? It all depends how you analyzing price and over what  period. Most traders use 50, 100, 200 which allows them to see what the average price did the last 50, 100 and 200 days.

Now I'm sure you questioning the fact that I'm advocating that I trade purely price action without indicators so why am I discussing this? I use EMA for two things for trend analysis and  to identify dynamic support and resistance levels. It's pretty simple when the 2 lines example 50 and 100 EMA cross higher then we have a bullish trend in place, if they cross lower then the opposite applies. Please keep in mind that EMA only works for a trending market but when markets are range bound we need to rely on the static support and resistance levels. Trading with the trend you will want to trade away from the EMA or if you get a very obvious counter trend signal you will then trade toward the EMA.

 From the chart below we can deduce that price has bounced off EMA many times in the course of this recent uptrend. This demonstrates how valuable these levels are in showing us the dynamic or moving support and resistance levels.

Now if we take both static and dynamic support and resistance levels as discussed above and in conjunction with a price action signal this usually gives me a high probability setup that I can take advantage of. 

Hope this article can contribute toward your success in trading

Happy pipping!!