In most traders tend to focus on the trend of the market as a trading strategy.
But the weakness of this strategy is sometimes the price bounces back or reverse direction. Therefore, if a trader using this strategy it must be good to find a period in which the movement of currency almost predictable direction. This period is known as support and resistance.
Below you can see an example of a 30-minute chart of EUR / CHF. Resistance over-head have been found by looking at the highest point of the market in the near 1.2050.
Instead, support is found from lows near 1.2030. With the defined areas, then the trader can proceed with his trading plan to buy and sell at certain price points.
While the Relative Strength Index (RSI) is a versatile indicator, which can be used to detect the saturation point of a trend. Time is the key of this indicator.
In the graph below, the trader that allows trading signals prior to selling at the resistance. The trick is to observe how the movement of the RSI indicator of the level of over-bought. As for the point of support, traders can look for a signal to buy EUR / USD when the RSI becomes over-sold.
Traders can continue to buy and sell between support and resistance levels until prices break through one of the levels. Although the EUR / CHF has a small range of movement, using this level trader allows traders to use risk management.
It is concluded that traders can use the RSI on the chart, such as the example above, to sell EUR / USD or other currency pair at overbought levels near 1.2050. New orders can be targeted in close support with the price range at 1.2030. So arget should be placed on the support of about 20 pips with a risk ratio of 1: 2.
