Support and resistance is one of the most popular and widely used methods of technical analysis in Forex. It is simple, easy-to-understand, and does not even require any additional analytical tools except the bare chart of the currency pair. Support and resistance levels form when the price action creates distinct peaks and plateaus on the chart. Support level acts as a barrier for the rate that falls, while the resistance is the level that prevents the rate from growing higher. Buying when the resistance is broken and selling when the support level is broken is a basic trading technique that made thousands of speculators rich. If you plan to trade using support and resistance, do not forget these important facts:
- When a support level is broken, it becomes a resistance level, and vice versa.
- Breaking the support and resistance levels is not an exact math. False breakouts are possible.
- Real breakouts are usually marked with a bar closing below/above the support/resistance level.
- Check your charts on different (larger) timeframes. Some important support and resistance levels can only be seen on
long-term charts. - If the rate bounces off the support or resistance, that level becomes stronger. The stronger support and resistance level is the more bigger can be potential trend wave when it is broken.
Concluding all that was said above, I should also warn you that using support and resistance in your daily trading will become profitable only over some time because this method requires a lot of real experience and becomes more powerful with each trading success or failure.
