Support and resistance are two of the most important concepts that forex traders can apply. These concepts will help you determine when a new trend begins, when an old trend reverses, and where and how to manage your risk.
Support It is a price at which a currency pair stops falling. It is truly that simple. It is a price lower than the current exchange rate below which a pair does not move. Think of support as a floor for the exchange rate. It is a price level below which you can place a stop if you are already long or considering getting a long pair.
An exchange rate may be moving lower, but eventually reaches a price that buyers perceive as attractive. They start buying, matching or outselling sellers. The purchase causes the price to stop falling and start rising.
Resistance is very similar to support in concept. The only difference is that it is above the current market price.
Endurance It is a price at which the rate of a currency pair stops rising. It is an exchange rate higher than the current one above which a pair does not move. Think of the resistance as a ceiling for the couple. It is a price level above which you can place a stop loss if you are already short or considering buying a short pair.
An exchange rate may be rising, but eventually reaches a price where sellers perceive it as overvalued. They start by selling, matching or outbidding buyers. Selling causes the pair to stop rising and start moving lower.
Support and resistance are two of the most fundamental concepts in forex trading. Still, too many traders don’t know how to accurately identify support and resistance. Also, many traders apply support and resistance incorrectly.
One of the biggest benefits of the point and figure method of trading forex is that support and resistance levels are easy to identify. It doesn’t matter what time period you are trading. Whether intraday, swing trading, or following long-term trends, point and figure charts can help you clearly see support and resistance levels.
In addition to making it easier to identify support and resistance, the point and figure method gives you a set of rules with which you can objectively apply the concepts of support and resistance to your trading. From clear buy signals and sell signals to price targeting, point and figure charts will give you a whole new perspective on forex trading.
