What is support and resistance?
Those of you who may be new to the Forex field will probably be overwhelmed by all the technical jargon that goes with the theory. However once you break support and resistance down into bite size pieces, you’ll realise it really is not that difficult. In the video below I will outline the basics of support and resistance, one of the key concepts in Forex trading.Successfully monitoring support and resistance is vital to becoming a successful trader.
So what exactly is Support and Resistance?
Support is determined as a price level at which the market is having difficulty to break below.On the contrary, Resistance is a price level at which the market is having difficulty to go higher.
If you can master support and resistance then you are half way to becoming a successful forex trader. A price level, at which these market situations occur, is called a Support or Resistance level. We expect or predict that on this level the market will change its direction.
The concepts of support and resistance are undoubtedly two of the most highly discussed attributes of technical analysis and are often regarded as a subject that is complex by those who are just learning to trade. However it is far from complex.
If price is approaching an area of previous support, then two things can happen. Firstly is the price may well bounce back off this area again, or price is to break through this area. In the video I show you how you can look for trades from either scenario.
This is an easy Forex technique that is the basis for ALL forex trades. Some important facts to consider before using support and resistance to trade Forex are:
• When the support level is broken it becomes a resistance level, the opposite is also correct.
• Breaking the support and resistance levels is not an exact equation. You MUST wait for a candle to close to avoid false breakouts.
• Real breakouts are usually marked with a candle that has closed below/above the support/resistance level.
• Check charts on the different (larger) timeframes. The higher the time frame the more important the support and resistance levels are.
• If price bounces off the support or resistance line, that level becomes stronger.
The stronger the support and resistance level is the more profit can be gained when it’s broken.
Determining future levels of support can drastically improve the returns of a short-term investing strategy because it gives traders an accurate picture of what price levels should prop up the price of a given security in the event of a correction. Also you can often use these areas as targets for trades, ie where to take your profits.
There are several different methods to choose when looking to identify support/resistance, but regardless of the method, the interpretation remains the same – it prevents the price from moving in a certain direction.
So now you know what Support and resistance levels are, in the video I am going to briefly cover how to trade them.
Trading support and resistance levels can be divided into two methods: the bounce and the break.
As for trading the break, there is the aggressive way and there is the conservative way. In the aggressive way, you simply buy or sell whenever the price passes through a support or resistance zone with ease. In the conservative way, you wait for price to make a “pullback” to the broken support or resistance level and enter after price bounces.
This article is merely a snippet of the basics of support and resistance levels. I cover support and resistance in much more detail via my mentoring program.
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