Supports and resistance

Supports and resistance ?? What are we talking about? When you visit forums, read books, or visit forex related pages you will discover that supports, resistances, trend lines, and channels are some of the most used concepts. Let’s dedicate this section to supports and resistance.

Take a look at the illustration, you will see how the price draws a zig-zag on its way. This example is in an uptrend, it would be the same in a downtrend. Note that the zig-zag also draws pull backs. The highest points reached before a pull back becomes resistance. it ascends and reaches higher points and

If the market returns to its original trend after the pull back, a minimum point will appear before it returns to its previous path, this minimum point being a support.

Supports and resistances in forex charts.

Identify Supports and Resistance

First of all, memorize this: Supports and resistance are not usually concrete numbers, rather, they are never concrete numbers. In other words, they have to be understood as support zones or resistance zones.

The most common way to use support and resistance is the breakout, the breakout of support or resistance levels can indicate that the price will continue in the direction of the breakout. It is very common for these levels to be broken by the shadows of the candles: these breaks are not considered as such, to speak of a break we must take into account the closing price of the candle, not the shadows or the maximum or minimum of sailing.

To know if a support or resistance has been broken, the most normal and logical thing to do is wait for a candle to close above the resistance level or close below the support level, but there may still be false breakouts so there is no definitive answer. to recognize the breakdown of supports or resistances so that there is no mistake. You may find that, like me, I consider a broken level if the market closes above or below the level in question, but this will not always be the case:

Now it can be said that that resistance has not been broken, it can even be said that it is a strong resistance that will cost to break.

To help identify false breakouts, it is better to think of supports and resistances as “zones” and not as exact levels as we mentioned at the beginning. Identifying these zones is much easier visually using a line chart rather than a candlestick chart because a line chart only shows the line joining the period closes.

Finally, comment on two points:

  • When resistance is broken, it will be below the price becoming support. Similarly, when support breaks, it will remain above the price and become a resistance.
  • The more times the price approaches a resistance or support without breaking it, the stronger that level is considered.

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