How to use support & resistance
What is Support & Resistance?
Many traders refer to the concept of support and resistance as the backbone of technical analysis. It is by far one of the most widely used tools in Forex, there’s no question about that.
Support and resistance are used by traders to identify potential points on Forex charts where prices are likely to change direction. They are lines, best viewed as areas or zones where, in the past, buyers became sellers and sellers became buyers.
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What is Support?
Support is the lowest point of a price downward movement. Once the price hits the support level, the direction has the potential to change and prices begin to rise. Forex traders often refer to Support as a ‘floor’ that supports (or holds) prices.
Support levels signify that there are currently more buyers than sellers which means that there is more demand than supply in the market. It is drawn on the chart using horizontal lines, always below the current market price.
What is Resistance?
Resistance is the highest point of a price upward movement. Once price hits the resistance level, the direction has the potential to reverse and prices begin to fall. Forex traders often refer to Resistance as a ‘ceiling’ that restrains prices from rising higher.
Resistance levels signify that there are currently more sellers than buyers which means that there is more supply than demand in the market. It is drawn on the chart using horizontal lines, always above the current market price.