In order to be successful in Forex trading, it is essential to understand the basic concepts of support and resistance. These two terms are used to describe levels where the price is likely to pause or reverse.
In this article, we will discuss chart patterns and how they can be used to identify support and resistance levels. We will also provide examples of how these concepts work in practice!
What Are Support and Resistance?
Support and resistance refer to price levels on a chart where the buying or selling pressure is thought to be strong. These levels can be identified by looking at past price action, and they are often used as potential areas where traders may enter or exit positions.
Support levels are typically found below the current market price, while resistance levels are usually found above the current market price.
How do I Identify Support and Resistance Levels?
Past Price Action
One of the simplest ways to identify support and resistance levels is looking at past price action. If you see that a stock has consistently found support at a certain level in the past, this level will likely continue to act as support.
Similarly, suppose you see that your current investment in Forex has consistently found resistance at a certain level in the past. In that case, this level will likely continue to act as resistance in the future.
One way to identify these levels is by using technical indicators. With these tools, you can keep track of and draw your support and resistance levels.
Not quite confident about your own analysis?
What Happens when Prices Reach Support or Resistance Levels?
Once prices reach a support or resistance level, they will often bounce back. This is because when prices go to these levels, there are usually a lot of buy orders or sell orders placed at these levels. As a result, prices will often “bounce” off these levels.
Support and resistance levels are essential for traders because they can help you predict where prices are likely to go in the future. By knowing where these levels are, you can make better-informed trading decisions.
Support And Resistance Strategies
You can use a few different strategies when trading support and resistance levels.
Waiting For Prices To Bounce
One strategy is to wait for prices to bounce off a support or resistance level and enter your trade. This is a good strategy if you want to enter into a transaction with momentum on your side.
Waiting For Prices To Break
Another strategy is to wait for prices to break through a support or resistance level and enter your trade. This is a good strategy if you think that the market is about to make a big move.
Support and resistance are two fundamental concepts that every trader should understand. These levels can be found on any chart and can be used to make trading decisions.