A good place to start your forex trading education is by studying the concepts of support and resistance. This forms and a good foundation upon which you can build by learning the many other facets of trading in this market.
Two of the most widely discussed facets of technical analysis are the concepts of support and resistance. Although this study is very often regarded by beginning traders as complex, our purpose is to simplify the subject by focusing on the very basics of what beginning traders will need to know. A thorough study of support and resistance is not possible here, but there is a mountain of information available on the subject.
Very rarely will you see price moving in a straight line on a forex trading chart. Actually, it usually will appear sawtoothed, with prices moving up, then down, then up, then down.
A support line is formed when you connect the bottom points, and a resistance line is formed when the top points are connected. But please be aware that there are other things to be considered when determining exactly which bottom points and which top points should be used. This is just to give you a very general idea.
Now when you look at this support line connecting the low price points, you can see how it tends to act as a floor, preventing prices from going below that level. Rather than break through this line, prices are more likely to bounce off the support level. But when the price finally does manage to break through the support level, it is likely to continue dropping until it reaches another support level.
One can view the resistance level as being the opposite of a support level. At this level, the price tends to find resistance as it climbs higher. And just as with support, price tends to bounce off this level rather than break through it. But once price manages to break through the resistance level, even by the smallest of amounts, it will more than likely continue rising until it finds another resistance level.
A support level often becomes the new resistance level when price pushes through it. Conversely, when price breaks through a resistance level, it will generally find support at that level in the future.
Support and resistance levels many times represent the prices that are most influential to a currency pair’s direction, and are therefore used by many technical traders to determine their entry and exit prices.
At first the concept and explanation behind identifying these levels seems easy, but as you’ll find out, support and resistance can come in various forms and it is much more difficult to master than it first appears.
One can identify many, many price patterns using only support and resistance. And those patterns will appear in any of the time frame charts. One can also develop an entire trading strategy based entirely on support and resistance levels. It is also possible to make a handsome living trading forex once one masters these concepts. It is recommended that you begin your forex trading education by mastering the study of support and resistance.
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