Forex Support and Resistance

Analyzing any Forex currency pair, every trader accounts for such values, which go through consolidation of its price not just once. At this point, it does not matter which forecast method is adhered by a trader: those values should be considered by all of them.

Support line represent force line to which the price moved top down and back not once. In the opposite case when the price several times approached a certain point down top and bounced from it, it is known as resistance line.

There are two types of force lines:

1) Horizontal line of support and resistance:

 

2) Incline lines of support and resistance:

 

As it can be noticed from charts, even after breaking any force line the price tend to get back to it from the opposite direction. Therefore, support line can perform as resistance line and vice-versa. The more often the price changes its direction near a certain resistance or support line, the stronger it is considered to be.

There are no clear rules for drawing force lines, in many cases building them is up to one's creativity. Lines do not require utter precision, that is to say it is not mandatory to put them through bars' highest and lowest points. Thus, instead of notions of resistance and support lines, the notions of support and resistance levels are used.

Only building of support and resistance lines can lead to generating a successful trading strategy. To improve yield, it is necessary to choose the strongest force levels, and transactions should be aimed to bounce from those levels rather than breaking them, because the probability of such events is higher. Upon that, it is important to understand in a proper time that the force level was broken, because often afterward the price sharply continues its sharp movement.

Among all, market behavior contains human factor: many large players put their pending Stop Orders following to considerable support and resistance levels, and crossing such levels can lead to avalanche-type actuating of those stop orders.

It does not matter which financial instrument and the type of applied technical analysis are preferred by a trader on the FOREX market. In any case, supplementary use of support and resistance levels will only improve results.