Support and Resistance

Support and Resistance” is common jargon for areas on the chart where price has difficult time breaking through.
Support levels tend to stop price from falling below a specific point and resistance levels act like a price ceiling that
price cannot break above.
Knowing where these levels are make it much easier to decide when to open and close trades, but how can we
locate these prices to begin with$ today we will cover 3 simple ways to identify support and resistance in Forex.
Support and resistance can have numerous applications and can be identified in a multitude of ways.
1. Trades can use support/ resistance identification for managing risk in a strategy.
2. Traders can also use support and resistance to grade market conditions, and enter positions.
3. One of the more difficult concepts within Technical Analysis is grasping the premise of support and
resistance. There are numerous ways to identify these levels, and even after identified, there are plethord of
ways of intergrading and trading with them.
One of the best reason to learn how to read a chart properly is so you can apply technical analysis, but it can be
useful, even if it is not your primary method of trading.
Technical analysis relies on the price that is on the chart you are using.
Most charting systems will allow you to add technical analysis tools as over lays on your chart.
Support and resistance are important technical levels for a price.
Support describe a price level that an asset tried to cross below, but ultimately stayed above.
Resistance describes a price levels that an asset tried to cross above but could not.
The bare minimum requirement to draw a support line or a resistance line is that the asset must spend a significant
amount of time or volume at the price level.
Specific types of support and resistance lines can be drawn based on additional chart patterns.
“A balls hits the floor and bounces. If drops after it hits the ceiling. Support and resistance is like a floor and a ceiling,
with prices sandwiched between them”.
When a stock’s price has fallen for a level where demand at that price increase and buyers begin to buy, this creates
a “floor” or support level.
When a stock’s prices rises to a level where demand decreases and owners begin to sell to lock in their profits, this
creates the “ceiling” or resistance level.
Strength of Support and Resistance
The more time that the price bounces off support and falls back from resistance, the stronger these support and
resistance level become. It creates a self-fulfilling prophecy. The more often it happens, the more likely it is to happen
again.
The more the historical patterns repeats themselves, the more traders “know”. And more confident they become in
forecasting the future behavior of the stock. Some prices become so entrenched in this trading range, that the stock
eventually has a hard time breaking through the levels to either the up or downside.
Understanding the concept of support, resistance, trading ranges, breaks and breaks downs can be quite valuable to
all traders.
Support and resistance is the one of the strongest and most dependable tools available to the trader.
Remember that it is the best to use any too along with other indicators when deciding whether and/or when to take or
exit a position.
PSYCHOLOGICAL LEVELS
Often called “PSYCH” levels, psychological levels occur when price ends with multiple so. It’s human nature to
gravitate towards round numbers when discussion any topics that involves numbers, forex include.
For example, when traders talk about what they think, the Euro will be worth in the future, they probably won’t give an
answer of 1.4278 or 1.3044. They are much more likely to round of the price to something simpler, like 1.4300 or
1.300. The same thing happen when forex traders place their order. We will often see cluster of orders around these
whole numbers, which creates price levels that can affect how price behaves. That’s exactly what we want for our
support and resistance levels.
The most common psych levels involve price hanging to zeros at the end (not including the 1/10 th of a pip), such as
1.6400 0r 102.00. more powerful than that would be psych levels ending in three zeros, such as 1.3000 or 120.00
leaving the most powerful psych levels of all, four zeros at the end. 1.0000 Or 100.00. The chart below has four
levels drawn at psychological levels we can clearly see their effect on price action.
Most experienced will be able to tell many stories about how certain price levels tend to prevent traders from pushing
the price of an underlying asset in a certain direction.
For example, assume that Jim was holding a position in Amazon.com (AMZN) and that was he was expecting the
value of the share to increase.
Let’s imagine that Jim notices that the price fails to get above $39 several times over the past several months, even
though it has gotten very close to moving above it.
In this case, traders would call the price level near $39 a level of resistance. As you can see from the chart below, the
resistance levels are also regarded as a ceiling because these price levels prevent the market from moving prices
upward.
On other side of the coin, we have the price levels that are known as support. This terminology refer to price on a
chart that tend to act as a floor by preventing the price of an asset from being pushed downward.
As you can see from chart below, the liability to identify a level of support can also coincide with a good buying
opportunity because this is generally the area where the market participants see good value and start to push prices
higher again.
Determining future levels of support can drastically improve the returns of a short-term investing strategy because it
gives traders an accurate picture of what price levels should prop up the price of a given security in the event of a
correction.
Conversely, foreseeing a level of resistance can be advantageous because this price level that could be potentially
harm a long position because it signifies an area where investors have a high willingness to sell the security. As
mentioned above, there are several different methods to choose when looking to identify support/resistance, but
regardless of the method, the interpretation remains the same-it prevents the price of an underlying from moving in a
certain direction.
RULES TO VERIFY SUPPORT AND RESISTANCE
1. Trend Challenged- Support and resistance often act as decisive trend changers. When an existing trend line
meets resistance, be prepared for dynamic shift. For example, in the all-state (all) chart, when the blue
uptrend converged with resistance, prices moved lower.
2. Place change- If support is violated, that same level will acts as the chart illustrates, the same horizontal
trendline continues after support is violated, but with differing effect.
 3. Retest reinforcement- The more often a trend line is tested, the more valid it becomes. The chart shows
persistent resistance at $32.50. With four separate challenges of this level over a four-month period, we
should expect any future rallies to stall at this price.
4. Volume reinforcement- If a resistance or support is associated with increasing volume, the trend becomes
more valid. Since September 2008, $42.50 has served as resistance. Each time that price level is tested,
volume increases (blue circles). This pattern add weight to the $42.50 level and indicates that overcoming
that price point will take significant time.
5. Time matters- the more recently a level has been established the more useful it is. A problem with the
current bear market is that quick losses had man traders looking well into the past for the support levels.
Unfortunately, grasping distant history is not useful. Examining a three-year graph we see a valid support at
$520. By the time stocks were collapsing in the fall of 2008, that support level had not been tested in over
one year. This made the support less important.
Support and resistance levels are key mile markets in a stock’s progress. Whenever you’re developing trading
strategies, consider these points on the graph. Doing so will help set profit targets and prevent frustration when
eventual reveals reversal occur.
Swing Highs and Lows
 Another great way to find support and resistance level is to mark levels in the past where price had a difficult
time breaking through. As price moves up and down, each level that price has bounced off could a level in
the future that price bounce off of again.
 This is a manually intensive method and takes time to draw on all the currency pairs that we trade, but can
pay off in the long run.
Support and resistance doesn’t have to be confusing. You can mix and match any of the methods above and create
a healthy amount of price levels that we can trade. As always, practice makes perfect.

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