Recognize and use support and resistance levels are very important for forex trading. These are two very useful indicators for determining the entry strategies, but they require a minimum of experience to be properly used.
Buying when the resistance point has a break and sell when the resistance is broken is a small strategy that can often help to gain profits.
Once you have acquired the basic information, studied a bit, exercised with a demo account, it is time to start real online trading with a forex trading strategy.
The question at this point is spontaneous: can you get already positive results with first operations? The answer is yes, but make sure to use high-profile trading indicators. These tools have been developed and are used consistently by all the world’s traders.
Let’s introduce in our basic forex trading guide the terms of supports and resistances, which are two indicators of technical analysis that help determine the future direction of the currency price, or better the currency pairs of the Forex market. They can be used also in other financial markets, such as stock, index or commodities.
These two tools are very important for studying a winning forex strategy for beginners.
When a pair of currencies has a bearish period and reaches the lowest point of descent and then resumes its ascent again, the lowest point gets the support name.
When the market moves in a bullish direction and then suddenly falls, the highest peak reached before the break point and the resulting drop is called resistance.
Depending on the chosen time period, it is possible to have more support and resistance points that will vary depending on market trends.
Supports and resistances allow to analyze the market trends in a certain moment, the supports in fact indicate that buyers prevent the continuation of its downward trend at the moment when the price is approaching a specific area. Instead, a resistance causes exactly the opposite behavior of the price, in this case the concentration of sales will block the bearish trend of the price of the currency pair.
The support and resistance levels, unfortunately, are not so accurate, nor they are so easily predictable. It is possible there may be “false alarms” or “false signals”. It may happen that the price continues its trend without behaving as we would expect when it comes near a support or resistance.
It is not always possible to draw precise predictions about when a break point occurs and start a trend reversal.
Support can be considered as a price drop barrier and resistance as the level that prevents it from rising further. Buying when the resistance point has a break and sell when the resistance is broken is a small strategy that can often help its earnings.
Opening a long position can be done when a resistance break occurs, because the price should continue its upward run for a period of time allowing you to have good profits.
Opening a short position should instead be carried out when a support level break occurs, which means that sellers are now having the best on buyers and that market conditions change, causing a bearish reversal.
Related Article: Going Short and Going Long
But be always very careful that they are not “reflections” in particular market situations.
Certain support and resistance levels can be considered for example the minimum and maximum historical levels reached by the price of an asset. Breaking this kind of level of support or resistance has to be considered as an important trading signal to be exploited in the most timely manner possible.
Supports and resistances are tools that can be used on different period of time but in particular, it is recommended to use them on long-term charts. Analyzing long-term charts helps identify a greater support and resistance area and more intermediate points.
The last recommendation (and we will never be tired of writing it): If you really want to earn in trading online, always choose authorized and regulated brokers.