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There is so much to learn for those who wish to trade in the forex market. A good place to start your forex trading education is with the study of support and resistance.
The concepts of support and resistance are often viewed as complex by the beginning trader. They are definitely two of the most widely discussed facets of technical analysis. A complete study of this subject is not possible in one article, but we’ll simplify the subject by focusing on the very basics of what beginning traders need to know.
When you view a forex trading chart, you’ll see that price doesn’t usually move in a straight line. A price will go up, then down, then up again, giving the appearance of a zigzaged line.
When you draw a line connecting the lowest price points, that is your support line. To draw a resistance line, you would connect the highest price points. This is only a very basic idea to provide a picture; there is more to determining which bottom points and which top points need to be considered.
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Support is a level which tends to act as a floor by preventing the price from being pushed downward. It is represented on a chart as a line that connects specific low points. Prices are more likely to bounce off this level rather than break through it, but once the price has broken this support level, it is likely to continue dropping until it reaches another support level.
A resistance level is the opposite of a support level. This is where the price tends to find resistance as it pushes upward. And as with support, the price is more likely to bounce off this level rather than break through it. However, once the price has passed this level, even by a small amount, it is likely that it will continue rising until it finds another resistance level.
If a price breaks past a support level, that support level often becomes a new resistance level. The opposite is true as well, if price breaks thru a resistance level, it will often find support at that level in the future.
Many technical traders will use the support and resistance levels they’ve identified to choose strategic entry/exit prices because these areas often represent the prices that are the most influential to a currency pair’s direction.
At first the concept and explanation behind identifying these levels seems easy, but as you’ll find out, support and resistance can come in various forms and it is much more difficult to master than it first appears.
Hundreds of price patterns can be identified using only support and resistance, and they can be found in any time frame charts. Entire trading strategies can be based solely on support and resistance levels. It is very possible for a trader to make a good living trading forex once these concepts are mastered. So if you’re looking to get up and running as quickly as possible, we urge you to start your forex trading education by mastering the concepts of support and resistance.
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