Support and Resistance in Forex Trading

Understand Your Support and Resistance 

In forex and commodity trading, prices always move up and down due to supply and demand. The direction of the price movement can be estimated by means of technical analysis. One way is to identify support and resistance levels.

In practice, to be able to find out these levels, you need an account for forex trading. You can get a demo account for forex trading at a broker that provides a demo account before you are ready to trade using a real account.

Understand Your Support and Resistance
Understand Your Support and Resistance

Maybe you still remember the concept of supply and demand taught in school, where when demand (demand) goes up and supply (supply) goes down, the price will go up.

If supply (supply) goes up and demand (demand) goes down, the price will fall.

Discussion About Support & Resistance

Support and Resistance Levels

In practice, currency prices in the forex market always move up and down. This is also influenced by supply and demand for the currency.

Then, there comes a time in the forex market where prices either stop moving up or stop moving down. This happens because the demand or supply is not large enough to cause forex prices to rise or fall.

In forex technical analysis, you can estimate when the supply or demand will increase. One way is to identify the support and resistance levels earlier.

Learn more about support and resistance.

Support & Resistance Levels

Support is a price level area where the demand is large enough to hold the price down (Demand > Supply). At this level, the price tends to stop moving down and will most likely go up again.

In practical terms, support is a level that is expected to hold a bearish move (down). Meanwhile, resistance is a price level area where the supply level is large enough to stop the price from rising (supply > demand).

At this level, the price tends to stop moving up and will most likely go down again. In practical terms, resistance is a level that is expected to hold a bullish move (up).

Now let's look at the following image:

Support & Resistance Levels

Support & Resistance Levels

The example above shows a zigzag line forming an upward moving graph.

When the price moves up and then down again, the highest point reached before going down again is called resistance.

When the price moves up again, then the lowest point reached before the price moves up again we call it support.

That's how we determine support and resistance levels along with price movements that go up and down all the time.

It should also be noted that support and resistance levels do not have to be fixed levels. That is, it is natural for some traders to differ by several numbers when determining support and resistance.

In fact, the most important thing is that the support and resistance are in the range of numbers that are not too far apart.

Resistance Becomes Support (RBS). "Support Becomes Resistance(SBR)."

Resistance Becomes Support and vice versa

Here's the story:

Although at the beginning of the support and resistance discussion, it was said that these levels were able to "hold" the rate of price movement, but that does not mean that these levels will last forever.

A support will no longer be able to hold a downward movement if it turns out that at that time the demand is no longer large enough. On the other hand, the same thing will happen to the resistance, where the supply is no longer large enough to withstand the upward movement.

Assume you are greeting people in a room.There is a floor and a ceiling. Our room's ceiling is analogous to resistance, while our floor is analogous to support.

In your hand is a golf ball. You throw the golf ball up until it hits the ceiling.

If your throw isn't strong enough, the golf ball will bounce back down. But if your throw is strong enough, then the ceiling will burst. That's roughly the analogy of support into resistance and vice versa.

Resistance Becomes Support (RBS). "Support Becomes Resistance(SBR)."
Resistance Becomes Support (RBS). "Support Becomes Resistance(SBR)."

So, when the resistance is "broken," then the price will continue to move up. The resistance that was above the price is now below the price. That's when resistance becomes support.

Likewise, with support. When the support "breaks" (breaks), then the price will continue to move down. Support, which was below the price, is now above the price. That's when support becomes resistance.

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