In this Forex trading guide we will try to describe in detail exactly what support and resistance means in the following Forex trading lesson. Support and resistance levels are important indicators that can be used to set stop loss and take profit orders using technical analysis.
Support levels are the places where the price of the currency is expected to rise. This happens when there is enough demand for the currency in order to stop the downtrend and cause it to go up.
In order to recognize support levels while Forex trading, take a look at the Forex chart, and try to find a few lows that fluctuate around a horizontal line. This line will be set as the session's support level.
If a support level is penetrated, and the currency drops below it, then it becomes a resistance level. This is because when the currency reaches the support level again most traders will sell their currency and cause it to go down again.
Forex trading Resistance levels are also horizontal lines that appear upper side of the chart. Resistance levels are used to set the upper level of Forex trading, when supply levels surpass demand for the currency. After a resistance level is broken there is usually a change in the bid/ask price of the currency, and it sometimes leaps upwards.
I hope this Forex trading guide will help you make the right decisions in investments, and help you understand this concept of suport and resistance.