The two most important basic concepts of technical analysis are support and resistance.
In the language of economics, the two common points of market demand and supply are support and resistance.
Draw Support and resistance in Forex Chart
Since the Forex market is a money-dependent market, this concept is quite valuable here. By determining the right support and resistance, you will be able to understand-
When to trade in the forex market?
When to exit the trade?
What is the amount of profit or loss?
This means that you can open and close trades at the right time by determining the support and Resis… through trend analysis.
If you understand support and resistance in the forex chart, you can understand how the Forex price works.
Support and resistance are always variable levels, which are never fixed at one level. Notice in the figure above, each of the highest peaks of the uptrend market is a resistances level and each of the lowest points of the downtrend is a support level.
When the support breaks and the price goes down further, profit can be made by trading the sell. Again, when the resistance breaks and the price continues to rise, profit can be made by trading in this condition.
And support can be traded by buying when it touches without breaking and profit can be traded when it touches without resistance. This type of trade is called swing trade. That is an opportunity-seeking trade.
How to find support and resistance in the Forex chart:
Suppose the market is on an uptrend, then the resistance is the price at which the market starts to rise again, and then it starts falling again. That is, the highest point after rising is the resistance level. Again there is a market downtrend, here the market goes down to the lowest, the point is the support level.
How do you know if support and resistance levels have been broken in your forex chart?
Many times looking at the chart it seems that the market has broken the support or resistance but after a while, it is understood that the market has not broken the support or resistances, the market has only tested. These market tests can be shown on the candlestick chart as follows:
The chart shows that the market has broken the 1.4800 support level twice. But the market has risen again immediately, meaning the support level has not broken. The market has only tested.
There is no proper answer to the question of whether the support and resistance levels have been broken. However, some say that if the price closes at the previous level, then the support and resistance break can be understood. But that is not always the case. See the chart below. The price has gone far below 1.4600. But later it increased again.
But the support did not break. It is still unchanged and much stronger. Now if you had closed your buy trade and traded, you might have faced a loss. It will be possible to determine support and resistance easily if you practice regularly.
Some valuable information:
- Once the market resistance level breaks, the next support level acts as resistances. Again when the market support level breaks once, the next resistances level then acts as support.
- The more market support and resistance levels test, the stronger.