Forex Support and Resistance

Forex Support and Resistance

Brackets and resistances are two of the most used concepts in Forex.

Although it may seem a lie, each person can have their own idea of ​​how to measure them. Let us first look at some basic points:

 

[caption id="attachment_533" align="aligncenter" width="566"] Forex Support and Resistance[/caption]

As you can see in the image above, the zig-zag pattern goes up. When the market moves up and then down, the highest point reached before it turns, is the resistance.

As the market continues to rise, the lowest point reached before it starts to turn around again is support. In this way the resistances and supports are continuously formed according to the oscillations of the market.

Placing supports and resistances

One thing to remember is that the brackets and resistors are not exact numbers. Sometimes you will see a level of support or resistance that appears broken, but soon you can see that the market was just trying. With Japanese candle plots these support and resistance tests are usually depicted with the shadows of the candles.

 

[caption id="attachment_534" align="aligncenter" width="590"] Forex Support and Resistance[/caption]

Notice how the shadows of the candles test the resistance levels. In those moments it seems that the market is breaking resistances. However, in a retrospective we can realize that the market was simply testing at that level.

So how do you know when truly a support or resistance has been broken?

There is no definitive answer to this question. There are those who say that support or resistance is broken when the market can close beyond that level. Anyway, you will realize that this is not always the case. Let's take the same diagram above and see what happens when the price closes after the resistance level:

[caption id="attachment_535" align="aligncenter" width="577"] Forex Support and Resistance[/caption]

 

In this case, the price has closed twice above the resistance level of 2500, but in both times has ended falling below it. If you thought they were real breakouts and you bought this pair, you'd be wrong! Looking at the graph now, you can come to the conclusion that the resistance was not really broken and that it is now even stronger.

To help filter these false breaks, you should think of the supports and resistances as "zones" rather than as concrete numbers. One way to find these zones is to place the brackets and resistors on a line chart rather than a candle chart.

The reason for this is that line charts only show the closing price, while Japanese candles add the highest and lowest prices. These high and low prices can be misleading because sometimes they can only be a reflection of the market.

By placing lines of support and resistance, we do not want to fool you with the reflexes of the market. Only supports and resistances should be placed in the intentional movements.

When you see the following line graph, you'll want to place them near the areas where you can see the price by forming peaks or valleys.

 

 

[caption id="attachment_536" align="aligncenter" width="609"] Forex Support and Resistance[/caption]

Other important information:

• When the market breaks a resistance, that resistance now becomes a support.


• The more times the price tests a level of resistance or support without breaking it, the stronger the area of ​​resistance or support.

 

NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.