Trend, support and resistance
You will learn to mark a level touched three times, plan a fourth touch, and work out where a stop goes and what it costs in ₦ before you enter anything.
What a level costs before you trade it
A level on a chart is a price where the market has turned before. On EUR/USD around 1.0850, support at 1.0850 means buyers stepped in near that price on earlier visits. Resistance at 1.0900 means sellers stepped in near that price. These are not rules. They are places where orders tend to sit.
The cost of watching a level is the spread you pay to trade near it. If your broker quotes EUR/USD with a spread of 1 pip, then entering at 1.0852 and exiting at 1.0852 costs you 1 pip. On 0.10 lots, with one pip worth ₦1,620, that spread costs ₦1,620. That cost is paid whether the level holds or not.
You also pay a cost for the distance from your entry to your stop. That distance is your risk. If you enter at 1.0852 and place a stop at 1.0822, the distance is 30 pips. On 0.10 lots, 30 pips times ₦1,620 per pip equals ₦48,600. That is the amount you can lose if the stop is hit. It is not a prediction. It is a calculation.
Why a stop placed on the line is a cost you did not measure
A level is not a wall. Price often moves a few pips through a level before turning. If you place your stop exactly at 1.0850, a move to 1.0848 hits your stop while the idea is still intact. You lose the trade and the level may still hold.
The fix is to place the stop beyond the level by a distance you have measured. Suppose you decide the stop must be 20 pips beyond support at 1.0850, so you place it at 1.0830. If you enter at 1.0852, your stop distance is 22 pips, not 2 pips. On 0.10 lots, 22 pips times ₦1,620 equals ₦35,640. That is the cost of giving the level room.
If ₦35,640 is more than you are willing to lose on one trade, you do not move the stop closer. You reduce the position size. Halving to 0.05 lots makes one pip worth ₦810. Then 22 pips times ₦810 equals ₦17,820. The level and the stop stay in the same place. Only the naira cost changes.
How to mark a level and plan the fourth touch
You mark a level by finding three touches at roughly the same price. On EUR/USD, if price touched 1.0850 in March, 1.0848 in April, and 1.0851 in May, you draw a horizontal line near 1.0850. The touches do not have to be exact. A few pips of difference is normal.
A fourth touch is not a signal to enter. It is a place to watch. You wait for price to reach the level and then decide if the orders that defended it before are still there. That decision is yours. The level only tells you where to look.
Before you enter, you write down three numbers: entry price, stop price, and position size. For example, entry 1.0852, stop 1.0822, size 0.10 lots. Then you calculate risk in naira: 30 pips times ₦1,620 per pip equals ₦48,600. If that number is acceptable, you place the order. If not, you change the size, not the stop.
One level, three touches, and a stop at ₦48,600
| Step | Amount | Note |
|---|---|---|
| Instrument and level | EUR/USD support near 1.0850 | price turned up here three times on the chart |
| Fourth touch entry | 1.0852 | buy as price returns to the level |
| Stop distance | 30 pips | entry 1.0852 minus stop 1.0822, expressed in pips |
| Position size | 0.10 lots | one tenth of a standard lot |
| Value of one pip | ₦1,620 | 10 units of the quote currency on one standard lot, converted at the current rate, then divided by ten for 0.10 lots |
| Risk in naira | ₦48,600 | 30 pips x ₦1,620 per pip |
| Spread cost on entry | varies by broker | the spread is added to the entry price and is not fixed across brokers |
Your broker may round the pip value, quote a different conversion rate, widen the spread at busy times, or charge a commission on top. Check the contract specification before you size a position.
Doing it once, step by step
You will mark a level on a chart, measure the distance to your stop, and calculate the naira cost before you place any order.
- 01
Find three touches at the same price
Open a daily chart of EUR/USD. Look for three points where price turned near the same level. For example, 1.0850, 1.0848, and 1.0851. Draw a horizontal line at the average of those three prices. That line is your level.
- 02
Decide where your stop goes beyond the level
Choose a distance beyond the level that gives the trade room to move. If the level is 1.0850, you might place the stop at 1.0830, which is 20 pips beyond. Do not place the stop on the line. Price can move through the line before turning.
- 03
Measure the stop distance from your entry
Suppose you plan to enter at 1.0852. Subtract your stop price from your entry price. 1.0852 minus 1.0830 equals 22 pips. That is the distance your stop will be from your entry. Write it down.
- 04
Convert pips to naira at your position size
Find the pip value for your position size. On 0.10 lots, one pip is worth ₦1,620. Multiply the stop distance by the pip value. 22 pips times ₦1,620 equals ₦35,640. That is your risk in naira.
- 05
Reduce size if the cost is too high
If ₦35,640 is more than you are willing to lose, do not move the stop closer. Halve the position size to 0.05 lots. One pip is then worth ₦810. 22 pips times ₦810 equals ₦17,820. The level and stop stay the same. Only the cost changes.
- 06
Check the contract specification before you trade
Your broker may round the pip value, quote a different conversion rate, widen the spread at busy times, or charge a commission on top. Read the contract specification for the instrument. It tells you the exact pip value and any extra costs. Then recalculate your risk in naira.
The mistake most people make here
The common mistake is to treat a level as a promise and place a stop exactly on the line, or a few pips above it, because the line looks tidy. Price often moves slightly through a level before turning, so a stop sitting on the line is hit while the idea is still intact. Instead, place the stop beyond the level by a distance you have measured, then work out the naira cost of that distance at your position size. If the cost is more than you are willing to lose, reduce the position size rather than moving the stop closer.Check yourself
Price touches support at 1.0850 three times. You enter the fourth touch at 1.0852 with a stop at 1.0822 on 0.10 lots. One pip on one standard lot is 10 units of the quote currency, converted at the current rate to ₦1,620 per pip on 0.10 lots. What is the risk in naira?
Entry 1.0852 minus stop 1.0822 is 30 pips. 30 x ₦1,620 = ₦48,600.
If you halve the position to 0.05 lots, what happens to the risk on the same 30-pip stop?
One pip on 0.05 lots is ₦810. 30 x ₦810 = ₦24,300, which is half of ₦48,600.
Questions that come up next
How much is one pip on EUR/USD in naira?
One pip on one standard lot is 10 units of the quote currency, which is US dollars. To get naira, that dollar figure is converted at the current exchange rate. At a rate of ₦1,620 per pip on 0.10 lots, one pip on a full standard lot would be ₦16,200. The rate moves, so the naira value of a pip changes with it.
How many touches make a level worth watching?
Three touches at roughly the same price are enough to draw a line. The touches do not need to be exact; a few pips of difference is normal. The line marks a price where orders have appeared before. It does not tell you what will happen on the next visit.
Why not place the stop exactly on the level?
Price often moves a few pips through a level before turning. A stop sitting on the line can be hit while the idea is still intact. Placing it beyond the level by a measured distance gives the level room. That distance has a naira cost, and you work it out before you enter.
What do I do if the naira risk is too high?
You reduce the position size, not the stop distance. Halving 0.10 lots to 0.05 lots halves the value of one pip, so the same stop costs half as much. The level and the stop stay in the same place. Only the amount you can lose changes.
Does a fourth touch mean I should enter?
No. A fourth touch is a place to watch, not a signal. You wait for price to reach the level and then judge whether the orders that defended it before are still there. The decision comes after the price arrives, not before.
What costs apply even when the level holds?
The spread is paid on entry and exit whether the level holds or not. On 0.10 lots, a 1 pip spread at ₦1,620 per pip costs ₦1,620. Your broker may also charge a commission on top. These costs are separate from the risk you take on the stop distance.
The words used on this page
- Support
- A price where buyers have stepped in before, so price turned upward near it. On EUR/USD, 1.0850 is support in the examples here. It is a place where orders tend to sit, not a rule.
- Resistance
- A price where sellers have stepped in before, so price turned downward near it. In the examples, 1.0900 is resistance. Like support, it marks a place where orders have appeared, not a promise.
- Pip
- The smallest standard move in a currency pair's price, usually the fourth decimal place. On EUR/USD, a move from 1.0850 to 1.0851 is one pip. Its naira value depends on your position size and the current exchange rate.
- Spread
- The gap between the price at which you can buy and the price at which you can sell. You pay it on entry and again on exit. It is a cost paid whether your idea works or not.
- Position size
- The amount of the instrument you are trading, measured in lots. It sets the naira value of one pip. Changing it changes your risk without moving your stop.
- Stop
- An order that closes your trade at a chosen price to limit the loss. Its distance from your entry, multiplied by the pip value, gives the amount you can lose. That amount is measured before you enter.
What to take away
- A level is a price where orders have sat before, not a rule that price must obey.
- The spread is a cost you pay whether the level holds or not.
- Place the stop beyond the level by a measured distance, then work out the naira cost.
- If that cost is too high, reduce the position size rather than moving the stop closer.