Marking the zones on your chart is as simple as drawing a line on the chart. However, if you have not looked at charts in terms of support and resistance zones before, it may be a bit difficult to find precisely where these zones are located. It is important that, as a naked trader, you “see” these zones. One brilliant method for finding zones on the chart, and this works particularly well for those traders who are new to finding zones on the chart, is to move to a line chart. Most charting packages will allow you to view the market on a line chart. A line chart is a chart that offers a continuous line, connecting the closing prices. Rather than showing the open, the high, the low, and the close, such as a candlestick chart, or a bar chart, the line chart simply connects the closing prices.
Take a look at the daily GBP/CHF chart (Figure 4.12). Where would you draw the zone?
Now, take a look at the line chart in Figure 4.13. Where would you draw the zones on this chart?
It is very obvious in Figure 4.13 that a zone should be drawn at 2.2713, and this is the beauty of the line chart. The line chart allows you to find those areas on the chart where price has “bent”—the line chart helps us to identify zones because the line chart shows where price has repeatedly bent, each bend on the line chart is a potential zone. Those places on the line chart with several bends are zones. Line charts may also be extremely useful for those charts where price doesn’t seem to be respecting a zone. Take a look at the NZD/USD four-hour chart in Figure 4.14. See how market prices are all over the shop and price does not seem to respect any zone? Perhaps there is a support and resistance zone hidden on the chart. Maybe it is there, but it is not immediately obvious where this zone is located.
When a chart looks like this, it may be difficult to spot the zone. Perhaps there is no zone on this chart? For these charts, the line chart may come to the rescue. A line chart may save you from sloppy price action on the charts. A line chart may make clear what is otherwise muddled and difficult to decipher. Line charts are absolutely critical for the naked trader. Notice how the price movement on the chart in Figure 4.15 becomes clear and the zone is now obvious. Because the line chart takes int0 11:00 in the evening in Europe, depending on the country. Traders in the Americas and Europe spend a good portion of the day trading during the same time. This is a significant aspect of forex, because European and North American markets capture the overwhelming majority of the volume in forex. Therefore, this closing price, the last price for the New York session, is extremely important. Both traders in the Americas and the European Continent influence it. After this closing price, the market slows down considerably and shifts into the interbank market, a very slow trading period punctuated by occasional bank-to-bank transactions. In a very real sense, the North American closing price is the last price of the day before Asia wakes up and starts a new trading day.