Support and resistance are fundamental concepts in forex trading that help traders understand where price might stop and reverse. Support is a level where price tends to find a floor as buyers come in, preventing it from falling further. Resistance is where price often hits a ceiling, with sellers stepping in to push it back down. These levels are not exact points but rather zones where the market reacts.
Traders use support and resistance to make decisions about when to enter or exit trades. When the price approaches support, it might be a good area to look for buying opportunities, especially if the level has held in the past. On the other hand, when price nears resistance, it may signal a chance to sell or take profits, anticipating a pullback.
Support and resistance can be identified using past price action. Look for areas on the chart where price has reversed multiple times. Horizontal lines can be drawn at these levels to mark zones of interest. These zones become more reliable the more times they have been tested without breaking.
In trending markets, old resistance levels can become new support levels after a breakout, and vice versa. This concept, known as role reversal, helps traders stay on the right side of the market trend. For example, if price breaks above resistance and then retests it as support, it may be a strong sign to enter a long trade.
Support and resistance are also used with candlestick patterns and other tools like moving averages to strengthen trade setups. For example, if a bullish engulfing candle forms right at a support level, it could signal a strong buying opportunity.
While these levels are useful, they are not foolproof. Price can break through support or resistance, especially during major news events or shifts in sentiment. That’s why traders use stop-loss orders and always manage their risk.
Understanding and using support and resistance helps traders spot potential turning points in the market. With practice, it becomes easier to read price behavior around these levels, giving an edge in making smart and timely trading decisions.
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