Forex resistance serves as the peak, which caps the level of the price of currencies. The minimum and maximum values of the trend in the technical analysis are determined by their respective names, which act as support and resistance levels. These levels are areas where the majority of traders are ready to either buy or sell the asset.
The level of support points to the area where the consumer’s interest is high. At this level, the price is considered to be very attractive to open long positions, and many traders decide to buy an asset at a time when its value is close to the support line.
The resistance level is an area in which the interest in the sale of high. Traders are willing to go short and sell the asset at a time when its value is close to the area.
How to Draw Lines of Support and Resistance Levels
Support and resistance levels are essential parts of technical analysis in trading. It is used to determine the trend. They check and confirm trends and should be used by all traders who employ technical analysis indicators.
The support line connects the previous minimum values. The trend can be an observed or oblique line, a horizontal line. This depends on the prevailing direction of price movement.
- The trend going up is the line connecting the minimum values, which perform the support with a positive slope.
- If the trend is going in the direction of the bottom line, therefore, it stands as horizontal support.
The resistance level is marked by the line that connects the previous maximum values. It can be marked by an oblique line or horizontal line that is dependent on the direction of the trend.
- The trend that goes down the line connects the maximum values, according to the resistance with a negative slope.
- If the trend is going in the direction of the upper trend line, therefore it acts as horizontal resistance.
To determine the uptrend, each new level of support should be higher than the previous one. Each new level of resistance should be higher than the previous one.
On the other hand, to determine the downward trend, each successive level of support should be lower than the previous one, and each subsequent resistance should be smaller than the previous one. If the level of support ceases above the previous one, it signals a change of the existing trend.
Trend uplink direction can go into the trend with a falling value when higher maximum values and slightly lower lows give way to lower highs and lower minimum values. Conversely, a downward trend may reverse on the climb when the lower maximum costs and marginally lower lows are consecutive higher highs and significant lows.
This type of reversal in technical analysis is called “rally,” “correction,” or “reversal of the trend.”
When a support level is broken below (subject to individual deviations), investors believe that the price will continue to fall. The previous support becomes the new resistance level.
When the resistance level is broken up (possibly specific deviation), investors suggest that the cost will continue to grow. Former resistance becomes a new support level, which may extend to decline.
It is expected that this situation may persist until the asset is stopped between the support and resistance levels.
Trading Strategy to Support and Resistance Levels
The rationale for the level of support lies in the hypothesis that the buyers see for themselves a more exciting deal. They are willing to buy as price approaches the support area. Sellers can see a better deal and are less likely to sell. But support does not, in all cases, can keep the cost. When it falls below the support line, it means that sellers can have an excellent opportunity to sell the asset.
Also, the basic premise of the resistance lies in the hypothesis and the approximation prices at the level of resistance. Sellers are more inclined to sell the asset, while buyers will be less likely to buy. A break above the resistance line says about the increased willingness to buy.
The spread between the support and resistance levels is two-directional: positive and negative change against the prevailing trend. It is significant for analysts and market players because they use a particular trading strategy in the same security, depending on the signals of these patterns.