Support and resistance is one of the most widely used concepts in Forex trading. To get acquainted with these two concepts, read this article.
Oddly enough, it seems that everyone has their own opinion on how to calculate support and resistance in Forex.
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First, let’s take a look at the basic concepts:
Support and resistance in Forex and how to use them
Look at the figure above. As you can see, this zigzag pattern is climbing. (Cattle Market)
When the price moves up and then recedes, the highest point before the retreat is now considered a resistance.
The resistance level indicates that there are many vendors at that point.
When the price rises again, the lowest point reached before the resumption of the uptrend is now considered support.
The level of support indicates that there are many buyers.
In this way, as prices rise and fall over time, constant resistance and support is formed.
The opposite is true in the downtrend.
The most basic way to trade a line or area is to support or resist as follows:
Trade jumps or bounces
- Buy where the price falls towards support.
- Sell where the price rises towards resistance.
Deal with “failure “
- Buy when the resistor breaks.
- When the support breaks, sell.
John? What are the other “mutations” and “failures”? If you are a little confused, do not worry. We will discuss these concepts in detail later.
Draw the level of support and resistance
The point to keep in mind is that support and resistance are not exact numbers but levels.
You often see a level of support or resistance that seems to be broken. But you immediately realize that the market is just testing that level.
In candlestick charts, it is usually the shadows of the candlesticks that show these “tests” of support and resistance.
Notice how the candlesticks have tested the support level of 1,700.
Support and resistance in Forex and how to use them
At the time, it seemed that the support market was broken.
But later we find out that the market has only been testing support.
At a glance, we see that the market was just testing that level.
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How do we know that a support and resistance is really broken?
There is no definitive answer to this question. Some believe that if the market or price close can be closed after that level, the level of support or resistance is broken. However, you will find that this is not always the case.
Let’s look at the example above and see what happened when the price actually closed after the support level of 1.4700.
Support and resistance in Forex and how to use them
In this case, the price has closed below the support level of 1,700 but has finally gone above it again.
If you thought this was a real failure and sold this currency, you would be in big trouble!
By looking at the chart, you can see with your own eyes that the support has not actually been broken. Rather, it remains intact and is now even stronger.
To help filter out these false failures, you need to think of support and resistance as “areas” rather than exact numbers!
One way to help you find these areas is to draw support and resistance on a bar chart, not a Japanese candlestick chart.
This is because line charts only show you the closing price, while Japanese candlestick charts add extreme floors and ceilings to the image.
These peaks and valleys can be misleading because most of them are just “sharp” market reactions.
It’s like someone doing a really weird thing, but when asked about it, they respond, “Shame, I had no intention. “It was just a reaction.”
When drawing support and resistance, we do not want market reactions. We only want intentional movements.
Looking at the bar chart, you should draw your support and resistance lines around areas where you can see the peaks or valleys formed.
Support and resistance in Forex and how to use them
Other important points about support and resistance levels:
- When the price crosses the resistance, this resistance can become support.
- The more the price touches the resistance or support level without breaking it, the stronger the resistance or support area.
- The stronger the reaction to a level of support or resistance, the stronger it can be.
- When the support or resistance level is broken, the strength to continue moving depends on how strong the support or resistance is broken.
With a little practice, you can easily identify areas prone to support and resistance.
Support and resistance in Forex and how to use them
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