The Change of Polarity

Filed under: Learn Forex Trading |

After I have drawn in my support/resistance “zones” on the daily forex charts, I am often looking for something that is called a “change of polarity”. This basically means that old support becomes new resistance in a bear market, and old resistance becomes new support in a bull market. And it is something that happens time and time again in the forex markets.

Figure 1.

I provided a very good example of a change of polarity trade today in “The Daily Trade” (Day 4), which showed old support becoming new resistance. This was the same pattern shown in Figure 1, whereby price bounced off support several times, before finally breaking it, and then retracing up to the same level and bouncing off it – forming a new resistance level. The reason for this is probably because traders who went long at the support level are now wanting to get out at breakeven. So when price moves up to that level again, there are lots of people wanting to sell.

This of course, happens in the opposite way in a bull market (see Figure 2.). This time, price has been bouncing off a resistance level several times, before finally breaking through. This time though, the price retraces back down to the old resistance level and forms a new support. The traders who had gone short at the resistance level are now wanting to get out at breakeven. Their revised target has been met and price continues upwards.

Figure 2.

This is a very simple yet effective trading technique, which when used along with price action signals, can be a very sound trading methodology. If you can master just a few techniques in forex and execute them with a money management strategy, you have the tools to become very successful. Well, that’s it for now, and I will have another forex trading article ready for you next week. Until then, have a good weekend!

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