Support and Resistance

Technical analysis of Forex patterns often uses support and resistance levels. When you look at a chart, you can see levels where the price appears to “bounce off” whenever it encounters them. These levels occur because movements in Forex markets are at least partially governed by the people placing trades.

A support level is one where the price finds some kind of support as it is going down – almost as though there was an invisible barrier stopping it from moving further downwards.

A resistance level is the opposite of a support level and shows up as a ceiling above which the price stubbornly refuses to move.

Once a support or resistance level has been broken there is a strong likelihood that the price will continue moving until it finds a new level that it doesn’t want to break.

There are certain psychological conditions that can provide support or resistance: round numbers on prices are often significant levels which prices seem reluctant to break. Once a level has been broken, it is not unusual to see a significant move in the market until a new level has been found.

If a price breaks through a support level then typically that then becomes a new resistance point instead.

Many traders like to draw trend lines on the charts they use to help them keep track of the support and resistance levels that they have identified.

I like to keep track of daily and weekly pivots as these often prove to be useful for trading: they provide a good degree of either support or resistance.

The previous day or week high can provide a significant level of price resistance. Similarly the previous day or week low can provide support for the price. I keep a watchful eye on these indicators to provide an extra check on the trades I make although my main focus is on my own custom indicator which regularly gives me an early warning of a change in the direction of the price trend even when other indicators haven’t spotted the change – this often gives me the edge with my trading.