Trading Off Support and Resistance Levels

Filed under: Learn Forex Trading |

Support and resistance levels are one of the bread and butter tools of forex trading, and it is important that you understand what they are and how to use them. Support and resistance are two sides of the same coin. You can think of support as the floor and resistance as the ceiling. The floor supports you, and this is exactly what a support level does. It allows price to rest and take a breather before continuing its move. However, the ceiling is a barrier and price must smash through it if it wants to move up to the next level.

 

Let’s take an example to clarify. Let’s say that price is moving up and it reaches a level in the market that it has been unable to break through in the past. This is a resistance level. Then, let’s say that price finally breaks through this level. The market continues to move up but then retraces back down and takes a breather at the previous resistance level, which now becomes the new support level.

 

Alternatively, price could be moving down and it reaches a level in the market that it has been unable to break through in the past. This time, this is the resistance level (we have to think opposite in a down trend). Again, let’s say that price finally breaks through this level. The market continues to move down but then retraces back up and takes a breather at the previous resistance level, which now becomes the new support level.

 

There are no hard and fast rules for marking in levels of support and resistance, so you will have to do it at your discretion. However, it is important that you do make them as accurate as possible, as the market often respects these very important levels.

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