Forex Charts Resistance and Supports
Once you know how to identify trends on forex charts you have to know about the resistance and supports. It is important to know this because traders often talk about trends and prices reaching the support or resistance levels. These levels are the price levels that a currency pair does not often go over or under. The top level is the resistance level and the bottom level is the support.
Why Does This Appear on Forex Charts?
Many traders wonder why there are support and resistance levels. The main reason why prices behave in this manner is the supply and demand structure of forex. At the support level the number of seller is less than the number of buyers and this causes the price to up toward the resistance level. However, at the resistance level the number of buyers is less than the number of sellers which causes the price to drop. This constant range flow can continue for a while until new data reaches the market that changes the range. At this time new support and resistance levels are set.
There are times when a support or resistance level is breached. When this happens the roles of the levels are reversed. If the price dips below the current support level this level turns into the new resistance level. This reversal usually comes after major economic news and reports are released as the price swings sharply in one direction.
Support and Resistance Levels
Support and resistance levels are present in all types of commodity trading from forex to the stock market. However, you should not consider these levels as set in stone. The location of the level can change so it is impossible to say that a level is at an exact number. Most forex traders view these levels as zones instead of specific numbers. Of course, these levels should not move based on your feelings but rather what the market is actually doing.
The Importance of Levels
A lot of new traders do not think that these levels are that important. This is incorrect as the levels are important when looking at trends, chart patterns and certain trading strategies. A lot of traders make their money by trading on the support and resistance levels. These traders use the levels to identify when they should close a trade because they know that the price rarely passes these levels.
Support and resistance levels are also use often in technical analysis. The chart patterns that help identify turns in the trend include these levels. Most patterns break through a support level when the price trend changes and you need to know what the level is to understand them.
Support and resistance levels are a very important tool in forex trading. It is possible to plot these levels on forex charts so you have a visual reminder. These levels are commonly used in trading strategies and technical analysis to help identify entry and exit points. All new traders should take the time to learn about these levels and how to identify them.