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Chapter 11, Part VII. Dynamic support and resistance Page 2

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 18, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Commander in Pips: For that purposes we must use stop losses… But ok, there is one method with applying two MAs, so, may be you’ll like it. It very similar to using two MAs for trend identification – while the market stands in the range between two MAs, despite at different splashes – you should hold position. Other words, the area between those MAs treated as area of support or resistance. The market could move inside it – this is not the problem, the major event is when the market will break through it. In this case you should change your position to the opposite.


    Chart #2 | 4-hour EUR/USD 7x5 and 25x5 DMA
    [​IMG]

    Here you can see, that although market has penetrated the red line (7x5 DMA) many times, but it was held inside the support zone – area between the 25x5 DMA (blue line) and the 7x5 DMA. But at the top, the market finally has broken through this area.

    Pipruit: I understand. Well, I think that this approach is more suitable for me.​

    Commander in Pips: This is important by the way – to find the application of different tools that is most suitable for you.

    And finally, we have to say, that although MAs could hold the market for a long time, sometime they will be broken, just in the same manner as simple support or resistance lines. You can see this on chart #1 – This MA has held the market in a long bull trend, but in 2005 it was broken and the MA has acted as resistance. The same has happened in 2008 – when market has tested twice the resistance of MA, it has turned into a tremendous bear trend.

    Pipruit: Yep, I see it, Sir. Still, MA has a very attractive feature – it plots automatically and is updated in real-time, so I do not have to look back to find support and resistances as with simple support/resistance lines. But the major question still remains – which one MA to choose, that will better indicate support and resistance for the current pair and time frame.


    P.S. This lesson was written by Sive Morten, who has been working for a large European Bank since April of 2000, and is currently a supervisor of the bank's risk assessment department. Sive's knowledge of forex market and banking industry is vast and quite complete. If you have any specific questions about forex, banking industry, or any other financial instruments, please post them on the next page and Sive should answer soon.


    Note: FPA ranks are earned in the battles against scam, not in the classroom.
     
    Hamza Samiullah and fran alvarez like this.
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