Learn More Support and Resistance Levels On Forex
Forex traders use support and resistance as a reference in making decisions in forex. This level will be determined to determine whether the price will continue to move up or even reverse direction.
If viewed from an economic point of view then support is a level where supply begins to decrease and demand increases, so in this condition prices will start to increase. In principle when the market price can break the support level, then the market price will be expected to continue declining to the next support level. On the other hand, when the market price is not able to break the level, then the market price will likely start to reverse.
Furthermore, there is an economic resistance that can be understood as a level when more supply and demand begins to decrease, thus the market price will decrease at that level. When the market price rises and breaks the resistance level, the market price is expected to rise at the next resistance level.
Is the above understanding sufficiently understood?
If not we will explain it more simply. Resistance is a level when the price has a tendency to fall, because the seller is more than the buyer or offer more than demand. Resistance level will certainly hamper the price to rise to higher again because it has reached saturation in buying.
Furthermore there is support which means the level where the price has a tendency to rise again, because the buyer is more than the seller or demand greater than the offer.
Benefit of Support and Resistance Level
The level we have mentioned above is very important in determining the point of profit and stop loss in forex trading. Thus it can be interpreted that the level of support and resistance is a psychological level of market participants when will take a decision to buy or sell a currency pair.
The thing that you need to understand again is the support and resistance line is not a certain level of price will rise or the price will definitely go down. But this level is an indicator that reflects the psychological market.
How to Determine Support and Resistance Level
In order for you to recognize the level of support and resistance, then the thing to do is to observe the forex chart slowly. Learn to observe charts and do not rush in paying attention to forex charts.
To better facilitate you in determining support and resistance lines, this time we will discuss some ways that can be done in determining the support and resistance lines.
Highest Point and Lowest Point Method
This first method is a very simple way and can be done by traders in determining the level of support and resistance. The thing you need to do is to look at historical data where prices are stuck.
When you use this method, the thing that needs to be done is to pay attention to where the price is stuck. With the more timeframes you use, it will be valid as well as the support and resistance levels.
You can also use trendline as support and resistance level. In order for you to draw a trendline well, then the thing that needs to be done is to recognize the existing trend first.
The thing you need to do is connect at least 2 valley points when the condition is being uptrend. On the other hand, you can connect at least 2 peaks when conditions are downtrend.
Well, when the price starts approaching the trendline line, then it can open the chance as resistance or support level.
Support and Resistance
Once you understand well what is meant by support and resistance, then we will go into further discussion. As a trader who trades in forex, then there are at least 2 things to remember related to support and resistance.
First, as the price moves up past the resistance, then the resistance level will start to turn into support. Vice versa, when the price starts to move down past support, then that level will turn into resistance.
The second thing is the more often the price moves up and test the resistance level and does not penetrate successfully, meaning that the stronger the price will swing to the support and resistance level.
New Level Support and Resistance
When the support and resistance levels are broken, the level will be the opposite level from before. This means that when the support level is successfully broken by the price, then the line will be the resistance level. The stronger the support, the stronger the resistance when the price breaks.
Then the question, when the level of support / resistance declared penetrated?
How to know if the support or resistance level is broken when the closing price of the last 1 candle lies below or above the support or resistance level.
Thus it can be interpreted, the support level is successfully broken if the last closing price is below the support level. On the other hand the resistance level is broken, when the closing price is above the resistance level.
Understanding psychological levels such as support and resistance is a simple way you can do to succeed in making profit in forex. Support and resistance is a basic science forex that is important to know and well understood by forex actors. Without knowing a good base, it will be very difficult for traders to generate consistent profits.
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