Support and Resistance Levels Examples on Forex Chart

Post on: 28 Июнь, 2015 No Comment

Support and Resistance Levels Examples on Forex Chart

Support and resistance is one of the most widely used concepts in Forex trading and it refers to price levels on a chart that tend to act as barriers that prevent the price of an asset from getting pushed beyond a certain point in a particular direction.

Support and resistance is one of the aspects of technical analysis. Technical analysis is the use of charts, chart patterns, chart levels, line studies and technical indicators to predict price movement of a currency instrument.

Support

Support prevents the price of an asset from getting pushed downwards. Support levels are therefore regarded as the floor because these price levels prevent the market from moving prices downwards past a certain point.

Example of a support on a chart:

On the example below you can see that price moved down until it hit a support level.

Once Price hit this level it slightly bounced back up then resumed going down until it hit the support again. This process of hitting a level and bouncing back is called testing the support.

The support was tested three times without breaking. Finally the price reversed and started moving in the opposite direction.

The more times a support is tested and price bounces up the stronger it is.

Trading the support is one of the strategies used by Forex traders. Once a this level has been determined traders put their orders to buy the currency at the same time putting a stop loss a few pips below the support.

Support

In the example above price did not move below the support levels drawn on the chart. This support level shows a region where price of the currency cannot break.

These price levels form good points where a currency in a downward trend is likely to reverse and get support and start moving upwards. This level shows that the demand to buy the currency pair at this level will be greater and therefore providing a good point to start a buy trade, while placing stops some pips just below this level.

This support level is also use by short sellers as a target where to set their take profit for their short sell trades. This is another reason why the trend is likely to reverse or consolidate at this level because once the sellers close their sell trades then momentum of the downward trend reduces and a consolidation will happen after which price direction is likely to reverse.


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