Support and Resistance
Support and resistance leevls are crucial for traders who use technical analysis. These levels show where the focus of supply and demand come together, which helps traders to determine the psychology of the market.
One key concept of technical analysis is that when a support or resistance level is breached, its role changes. If the price rises above a resistance level, that price will often become a support level. In these instanes, supply and demand hae shifted, resulting in the broken level reversing its role.
How do you determine support and resistance levels?
Plotting where support and resistance lies is key for traders to establish when buying and selling. These levels can often lie in a zone rather than exact numbers. When price moves higher and pulls back, the highest price reached before it pulled back is resistance. When price continues higher again, the lowest point reached before it moved back is now support.
How do you use support and resistance in forex?
In basic terms, a trader will buy when the price falls near towards support. That support zone has held prices up in the past, and the expectation is that the market will bounce from there. A trader will sell when the price rises towards resistance.
Two things to note. Firstly, the more often a market tests a level of support or resistance without breaching it, the stronger that zone of support or resistance becomes.
Secondly, when a support or resistance zone does break, the strength of the follow-through move depends on how strong the breached support or resistance had been.
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