What Are The Types Of Spreads In Forex?
What is support and resistance in forex trading?
“Support and resistance” is one of the most widely used concepts in trading
Looking at the diagram above, you can clearly see an upward trend (“bull market”). You may even notice that there is a pattern of support and resistance.
The resistance level is when the price moves in an upward direction and pulls back, the highest point reached before it pulled back is your resistance.
The resistance level indicates where there will be a surplus of sellers.
When the price reverses and continues in an upward direction, the lowest point reached before the reversal starts is your support.
Support levels indicate where there will be a surplus of buyers.
New support and resistance levels are continually formed as the price moves up and down over time.
How are support and resistance traded?
Trade the “Bounce”
- Buy when the price falls towards your support level
- Sell when rises towards you support your resistance level
Trade the “Break”
- Buy when the price breaks through your resistance level
- Sell when the price breaks through your support level
Plotting Support & Resistance Levels
Support and resistance levels are not exact numbers.
Most times you will notice that a support or resistance level may appear to be not working or broken, but after some time you will see that the market was just testing it. We refer to these “tests” as candlestick shadows.
In the example above, we can notice how the shadows of the candlestick tested the 1.4700 support level.
At first glance, you may have thought that the price was “breaking” the support level. However, with the benefit of hindsight, we can see that the price was just testing that support level.
How do we know if support and resistance were really broken?
We cannot give you a definitive answer to this question.
Many traders argue that a support or resistance level is broken if the price can actually close past that level.
This is not always the case though.
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