How to Trade - Support and Resistance

15
Oct

Support and Resistance is one of the most widely used concepts in trading. Strangely enough, everyone seems to have their own idea on how you should measure support and resistance.

Let's take a look at the basics first:

Look at the diagram above. As you can see, this zigzag pattern is making its way up (bull market). When the market moves up and then pulls back, the highest reached before it pulled back is now resistance.

As the market continues up again, the lowest point reached before it started back is now support. In this way resistance and support are continually formed as the market oscillates over time. The reverse is true for the downtrend.

Plotting Support and Resistance

One thing for members at the Forex Trading Floors to remember is that Support and Resistance levels are not exact numbers.

Often times you will see a Support and Resistance level that appears broken, but soon after find out that the market was just testing it. With candlestick charts, these 'tests' of Support and Resistance are usually represented by candlestick shadows.

Notice how the shadows of the candles tested the 1.4700 support level. At those times it seemed like the market was "breaking" support. In hindsight. we can see that the market was merely testing that level.

 

Next week the How to Trade blogs will be looking at how we know if Support and Resistance was broken?

To Summarise:

Support and Resistance is very widley used
The Support and Resistance levels are not exact numbers - the market could just be testing the levels.
Resistance is the highest point reached before a pull back
Support is the lowest point reached before the market started back
Support and Resistance will be discussed at the end of radio show 'Trading Floor Chat' tomorrow morning. Members of the trading floor will be live trading from 8am with a special part about Support and Resistance starting at 10am. To register yourself a free trial of the online membership please email or call us on 01277 232223.

We also offer one-to-one coaching either at the trading floor or online.

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