What is Support and Resistance? Increment your winning trades!
Support and Resistance is one of the most needed knowledge to successful trading at the Forex market. No matter if you trade manual or use signal services, Support and Resistance are a great way for incrementing your win rate. Sometimes it is possible to trade only using this two indicators. This is called price action, because what you do depends purely on the price movement.
To conclude, Forex prices base at supply and demand (except gold, this price become set manually each Monday). If more assets are available at the market, then the price fall. If fewer assets are available, then the price will rise. On the other hand buying more people if the price is smaller, hence few assets are available, what the price raises. And a high price means more seller, means more assets, means a falling price. Most assets (currency pairs, resources and stocks) are not volatile. At the market buying and selling trader steadily assets. Trader which want buy goods wait until the price is low. Trader which have already an asset wait at a good price to sell them. That means that the price move in a small area up and down.
How to identify Support and Resistance?
The area of price movement is limited by two special trend lines: the Support and Resistance. They are every time horizontal lines. The Support is the line, where the price is low enough, that more people buy the asset whereby the price rises. The Resistance is the area where the price is high enough, that more people sell her asset. That causes in a falling price. The only difference is, that the Support is below and the Resistance is above the current price. It is really important, because you can expect that the price will reverse at the touch of a Support or Resistance. More touches means that this lines become stronger and unlikely breaks. Use here the same rules as you use on other trend lines:
- Look only at closed candles, the current one doesn’t matter.
- When the price touches a Support or Resistance twice or more times in only few candles, treat it as one single touch.
How to use Support and Resistance?
When the price falls and touches the Support, can you expect, that this is one of the lowest price in the next time. When the price rises and touches a Resistance, can you expect that this is one of the highest price. That means, if you want to place a CALL trade, you have to wait until the price fall down and touch the Support. If you want to place a PUT trade, then it is the best practice to wait until the price will touch the Resistance.
The other possibility is that a Support or Resistance broke. In this case become a broken Support the new Resistance, and vice versa a broken Resistance the new Support. This ends in most cases in a big price movement in the direction of the break. There are high profitable price action strategies which aim for these breakouts and the price movement.
In this image are more Supports and Resistances, but that are the main lines for this part of the charts. A good technical indicator supported by much chart software like MetaTrader are the Fractals. To test Support and Resistance, checkout our free binary option demo.