Support and resistance levels are key technical analysis concepts used in forex trading. They represent areas on the chart where the price of a currency pair is expected to either reverse or consolidate. A support level is a price level where the price of a currency pair has previously found support and is expected to bounce back up from. A resistance level is a price level where the price of a currency pair has previously found resistance and is expected to drop down from.
Support and resistance levels can be identified using various technical analysis tools, including trend lines, horizontal lines, and moving averages. Once these levels are identified, traders can use them to make informed trading decisions, such as entering or exiting trades or setting stop-loss orders.
Support and resistance levels can also be used to identify price patterns, such as the double bottom or double top. These patterns indicate potential trend reversals, and traders can use them to enter trades in the opposite direction of the previous trend.
It is important to note that support and resistance levels are not exact price points, but rather zones or areas where the price is likely to react. Traders should also keep in mind that support and resistance levels can be broken, especially in the event of a significant news release or other market-moving event. Therefore, it is essential to use other technical analysis tools in conjunction with support and resistance levels to confirm trading decisions.
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