Trend, support and resistance

A support level is a price where buyers have stepped in before. A resistance level is a price where sellers have stepped in before. You find both by looking at where the chart has turned more than once. On USD/ZAR at around 18.4100, a level might sit at 18.4000 because price stopped falling there last week. It is not drawn by the broker. It is drawn by you, from the candles you can see.

Start on a daily chart so each candle covers one day of trading. Look for two or three points where price reversed direction. Draw a horizontal line through the middle of those turning points. The line does not need to touch every candle exactly. If the turns happened within a few pips of each other, that is close enough. A level that only one candle touched is not a level yet.

The line matters because orders sit near it. Some traders place buy orders just above support. Others place sell orders just below resistance. Stop losses also cluster there. When price reaches the level, those orders can push it back. That is why the level looks like it works. It is a place where order flow has gathered, not a rule the market must obey.

Each time price touches a level, some of the orders sitting there get filled. A buy order at support is used up when price trades at that price. After three touches, many of those buy orders are gone. The level still looks the same on the chart. The orders behind it are thinner. On the fourth touch, there may be too few buyers left to push price back up.

The other side of the level also changes. Traders who bought at support on the first three touches now hold positions. If price breaks below the level, their stop losses sit just under it. Those stops are sell orders. When price reaches them, they add to the downward move. A level that held three times can break quickly on the fourth because the break itself triggers more selling.

This is why a support level is not a promise. It is a place where orders have clustered before. Those orders may already be filled. Instead of assuming a bounce, decide what a break would cost you in rand. On USD/ZAR at around 18.4100, a move of 100 pips on 0.10 lots is about R100. If your stop is 20 pips away on 0.10 lots and 1 pip is worth R1.00, your risk is R20.00. That number is known before you enter.

When price is close to a level, your stop may need to sit beyond it. That distance sets your risk per pip. You choose the position size that keeps the total risk inside your limit. Suppose you want to risk no more than R30.00 and your stop is 15 pips away. R30.00 divided by 15 pips gives R2.00 per pip. On USD/ZAR, 0.10 lots gives about R1.00 per pip, so R2.00 per pip is 0.20 lots.

The same arithmetic works if the stop is wider. If your stop is 30 pips away and you still want to risk R30.00, you need R1.00 per pip. That is 0.10 lots. A wider stop means a smaller position for the same rand risk. This is the part many beginners skip. They pick a lot size first and then place the stop wherever it fits. That reverses the order and lets the market decide your risk.

Brokers may round pip values, add spreads and charge commission on top. The rand figure you see can differ from the one you calculated. The calculation is still the right starting point. It tells you the maximum you intend to lose. The actual loss may be slightly more or less. What matters is that you decided the number before the trade, not after.