How to determine key price levels in forex trading

In 2010, I published this method on forex factory and it has undergone several modifications since then. The goal is to obtain a new  mathematical model which uses a single and very important price of a currency pair to derive other significant supports and resistance price levels. In a nutshell, we need a single fundamental price to generate other derived prices. Many years have come and gone and so modifications have been made to the original equations to accommodate market dynamics.This formulae is compatible with long term strategies (breakout, bounce or hedging).


This is a  long term trading oriented idea and as such it  requires that the fundamental price is a long term product. Therefore, the fundamental price can be any of the following:

-The opening price of the year (opening of first trading day of the year). This is easily seen on weekly or monthly charts.

-The opening price of the month (opening price of first trading day of the month). This is easily seen on daily charts or the opening price of the recent monthly candle.

-The opening price of the week (open of first trading day of the week). This is easily seen on 4-hour chart or the opening price of the recent weekly chart.

For example:
We want to generate key levels for the yeaar 2016.The first step is to determine the fundamental price of the year 2016.This is the open price of the year 2016.It means we have to  open either weekly or monthly chart of any currency and check the open price of the first trading day of the first week or first month (January) of the year.

The chart above is a good example from  the monthly chart of EURUSD. The open price of 2016 was 1.0871.Look at the blue horizontal line on the chart.

Calculations:

Let us denote the fundamental price which is also the open price with letter M. 

From the chart we found that the opening price of 2016 was 1.0871, hence M = 1.0871

We therefore have, from the calculations using the formulae, that the remaining derived prices for 2016 were

Support Price Levels:

S1 = 0.9844  multiplied by  M

 S2 = 0.9688 multiplied by  M

 S3 = 0.9375 multiplied by  M

S4 = 0.875  multiplied by M

S5 = 0.75 multiplied by M

S6 = 0.5  multiplied by M

Sc = 0.0 multiplied by M

Where Sc is state of collapse.

Resistance levels the formulas:

R1  = 1.0156  multiplied by M

R2  = 1.0312  multiplied by M

 R3 = 1.0625 multiplied by M

 R4  = 1.125 multiplied by M

 R5  =  1.25  multiplied by M

R6  = 1.5 multiplied by M

 Rc  = 2  multiplied by M

Application:

Now let us apply the formulas to EURUSD  to determine the major support  and resistance levels for the year 2016. Remember that M = 1.0871 for EURUSD in 2016.

Hence;

R1  = 1.0156 X 1.0871 = 1.1041

R2  = 1.0312  X 1.0871 = 1.1210

 R3 = 1.0625 X 1.0871 = 1.1550

 R4  = 1.125 X 1.0871 = 1.2223

 R5  =  1.25 X 1.0871 = 1.3589

R6  = 1.5  X 1.0871 = 1.6307

 Rc  = 2.00 X 1.0871 = 2.1742

Now applying this to EURUSD, We have that:

S1 = 0.9844  X  1.0871 =1.0701

 S2 = 0.9688  1.0871 = 1.0532

 S3 = 0.9375 X 1.0871 = 1.0192

S4 = 0.875 X 1.0871 =  0.9512

S5 = 0.75 X 1.0871 =  0.8153

S6 = 0.5 X 1.0871 = 0.5436

Sc = 0.0 X 1.0871 = 0.0000

Any trained traders will easily know and appreciate the relevance of the levels.The levels are important and traders should watch out for price actions around them.They can be used for entry as well as exit prices. A breakout trader can use them and so can a bounce trader. It must be noted however that a broken support becomes resistance and a broken resistance becomes support. You can leave comments or questions here. I am the author of this blog. I can write for you on your forex blog too for a token.