Trend, support and resistance

One reader draws a line at 1.0850 because price bounced there once. Another reader draws the same line because price turned there three times over several weeks, and each turn was followed by a move of at least 40 pips. The second reader has more evidence, but neither reader knows what happens next. A level is a record of past behaviour, not a forecast.

The first reader treats the line as a floor. When price falls to 1.0850, that reader buys without checking whether the fall is slower or faster than the earlier bounces. The second reader compares the current approach with the earlier ones. If price is reaching the level more slowly, with smaller candles, buyers may still be present. If price is reaching it quickly, with large candles, the same level may give way.

The comparison is not about who is right. It is about who has a plan for both outcomes. The first reader has a plan only for a bounce. The second reader has a plan for a bounce and for a break. Before you mark any level, decide what you will do if it holds and what you will do if it fails. That decision is the difference between watching a chart and trading one.

A level needs at least two touches to be worth marking. One touch is a single event. Two touches show that orders appeared at roughly the same price more than once. Draw the line through the bodies of the candles, not the wicks, unless the wicks cluster at the same price. Wicks show rejection, but bodies show where most trading happened.

After the second touch, measure the reaction. A reaction is the distance price moved away from the level before returning. If EUR/USD turned at 1.0850 and moved to 1.0920, the reaction is 70 pips. A level with a 70 pip reaction is more useful than one with a 10 pip reaction, because the larger move shows that more orders were filled. Write the reaction size beside the level on your chart.

Use two or three levels, not ten. Too many lines make every price look important, which is the same as no lines at all. For EUR/USD around 1.0850, you might mark one level below at 1.0820 and one above at 1.0890. The space between them is where price is deciding. When price is inside that space, you wait. When it leaves, you check whether the level held or broke.

A stop is not a punishment. It is the price at which your reason for the trade no longer applies. If you buy at a level because you expect buyers there, the reason fails when price closes below that level. Place the stop beyond the level, not at it. If the level is 1.0850, a stop at 1.0845 gives the level room to be tested without closing you out on a wick.

The distance from entry to stop sets your risk in pips. On EUR/USD, one pip on a standard lot is 10 units of the quote currency. On 0.10 lots, one pip is 1 unit. If your stop is 25 pips away on 0.10 lots, your risk is 25 units of the quote currency. Convert that to KSh using the rate your broker shows, and remember the rate varies between brokers and over time.

Size the position after you know the stop distance, not before. If you accept a loss of KSh 3,870, and your stop is 30 pips on 0.10 lots, that position fits. If the same stop on 0.30 lots would risk KSh 11,610, you either reduce the lot size or skip the trade. The level does not decide your size. Your accepted loss and the stop distance decide it.

When price returns to 1.0850 for a fourth time, compare the candles with the earlier three. If each candle is smaller and the approach is slow, buyers may still be absorbing sellers. If the fourth candle is larger than the earlier ones and closes below 1.0850, the buyers who were there before may have stopped. The level is not broken because of the number four. It is broken because the orders that held it are no longer enough.

A held level gives a bounce. A broken level often gives a move in the opposite direction, because stops from buyers sit just below the level. When those stops trigger, they add sell orders. This is why a break can be fast. You do not need to trade the break. You need to know that it can happen, so your stop is already placed and your loss is already accepted.

After the trade, compare what you expected with what happened. If the level held, did you follow your plan or did you move the stop? If the level broke, did the stop trigger at the price you set? The comparison teaches more than the outcome. A winning trade that broke your rules is a worse habit than a losing trade that followed them.

Open a chart of EUR/USD and find a price where it turned at least twice. Write the price, the number of touches and the size of the reaction in pips. Do not mark more than three levels on one chart. Keep the chart on a timeframe you can check once a day, such as the four-hour chart, so you are not watching every tick.

For each level, write two sentences: what you will do if price holds, and what you will do if price breaks. If you cannot write both, you do not yet have a plan. The sentences must include a stop price and a lot size, because those turn an idea into a decision you can measure.

Finally, convert the stop distance into KSh using the rate your broker shows. Write that amount next to the level. If the amount is larger than you are willing to lose on one trade, change the lot size until it fits. The level stays the same. Only the size changes.