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Forex For Beginners

Support and Resistance

Identification of key support and resistance levels is an essential ingredient to successful technical analysis and it is also one of the most important process in forex and stocks trading.

First, let us look at the above diagram. The market moves up to some level and then fall back, the highest point reached before it fall back is known as a resistance and the lowest point reached before it started to goes upward is known as a support. Support and Resistance level established when prices are continually formed as the market oscillates over time. Often time, the resistance level may becomes the support level when prices break out from the previous resistance level.

When market decline closer to the supporting point, the price at that level is believed to be cheaper, therefore, buyers increase and sellers decrease. At this point, it is believed that demand will overcome supply and prevent the price from falling below the support level. Likewise, when market closes to the resistance point, the price believed to be higher, and therefore less buyers, price will start to decline.

Support and Resistance Zones

Technical analysis is not an exact science, you may often notices that the support and resistance levels are not exactly the same figure. As such, it is useful to create a " zones ". Sometimes, zones work better, if a trading range spans many months and the price range is relatively large.
One way to help us find these zones is to plot support and resistance on a line chart rather than a candlestick chart. See below example for the resistance and support zone.