Support and resistance levels are used by investors to determine how far they believe a currency pair will move. This also tells them at what points the price action may turn around and start moving in the opposite direction. Get these Forex Scalping Cheatsheets plus the 10X Scalping System and the Hot Time Indicator FREE. Download this Magic Breakout Trading Forex Strategy Ebook FREE just now. Master these Candlestick Patterns with this 82 page PDF FREE Candlestick Guide!
Even when you take all the precautions with your support and resistance levels, you may fall victim to a false breakout. Now, you will ask how I can tell when the price has truly broken through support and resistance in a new direction.
Setting price amplitude benchmarks involves looking at a chart to determine if you can identify and know when the price action momentarily broke through the prevailing support and resistance level before pulling back and once again returning to the previous level.
A price amplitude benchmark will tell you if the price has broken through the predetermined level but did not breakthrough the benchmark; you don’t have to worry about a change in the trend direction. However, if the price had enough momentum behind it to breach the benchmark, it can continue in the new direction.
Once a resistance level is broken, that same level will turn into a support level. Similarly, when a support level is broken, that same level will turn into a resistance level. You should understand both the price amplitude benchmarks and the role reversal confirmations and use both in your trading analysis to filter out a false breakout from a true one.