Forex technical analysis: support and resistance lines.
When the price on the market reaches a certain level, it often does not continue to rise or fall. It seems that there is a resistance line at this price that blocks or supports the price. We call it the resistance line and the support line, respectively.
The resistance line means that when the price rises to a certain height, there is a large supply of selling or a weak buying takeover, which prevents the price from continuing to rise. The support line means that when the price drops to a certain height, the buying gas turns to strong and the selling gas weakens, so that the price stops continuing to fall. From the perspective of supply and demand, “support” represents concentrated demand, while “resistance” represents concentrated supply, and changes in the supply and demand relationship in foreign exchange markets. This has led to restrictions on price changes.
Both resistance and support lines are important methods for graphical analysis. Generally, if the price fluctuates up and down in a certain area, and the cumulative volume in this area is extremely large, then if the price rushes or falls below this area, it will naturally become a support line or resistance line. These price levels that have had a large volume often change from the resistance line to the support line or from the support line to the resistance line: Once the resistance line is crossed, it will become the support line of the next downtrend; , Will become the resistance line of the next rally.
Resistance and support are the most widely used technical concepts in the trading process. Strangely, everyone has their own set of opinions about support and resistance.
As you can see in the picture above, as you can see, this Z-shaped pattern shows a price increase. When the market moves higher and a retracement occurs, the highest point is formed. After the exchange rate retraces, the highest point becomes a resistance level.
As the market moves higher again, the lows previously formed by the exchange rate are now turning into support. From this point of view, the resistance and support of prices are constantly changing with the market trend.
Description of resistance and support
One thing to remember is that resistance and support are not specific numbers.
Many times, you will see resistance and support levels seem to have been broken, but soon found that the market is only testing the above prices.
As shown in the chart below, usually the shadow part of the candlestick pattern “tests” resistance and support levels:
Note how the shaded portion of the candlestick test the 1.4700 support level. At those times, it looks like the exchange rate is about to fall below the support level. But it turns out that the market is only testing this price.
So, how can we really know that the support or resistance level has been broken?
There is no clear answer to answer this question. Some people argue that if the market closes through this price, the resistance or support level will declare a breakthrough. However, you will find that this is not always the case.
Let us look at the same example as above, you will clearly see what happens when the price closes below the 1.4700 support.
In this case, the exchange rate closed below the 1.4700 support level, but then rose again above the line.
If you believe that the exchange rate fell below 1.4700 is a real breakthrough and then sold, then you will suffer heavy losses!
Looking at this graph now, you will clearly see that the 1.4700 support has not actually broken through, it is still intact and stronger.
To help you filter out these fake breakouts, you should think of support and resistance more as a “range” rather than specific values.
One way for you to find support or resistance ranges is to depict support or resistance on a line chart, not on a candlestick chart. The reason is that the line chart only shows the closing price, while the candle chart adds additional high and low prices on the graph.
These highs and lows can mislead traders, because in many cases, the formation of these highs and lows is just a “knee jump reflection” of the market.
When describing support and resistance, you don’t want to get conditioned information about the market. You only need to describe the potential fluctuation direction of the market immediately.
Please see the following line chart, the peaks or troughs formed in the price constitute the resistance or support line of the price.
Other interesting content about support and resistance:
- When the price breaks through the resistance level, the resistance level may become a potential support level
- The more the price tests the resistance or support level rather than the breakthrough, the stronger the resistance or support area
- When a resistance or support level is breached, the trend of the breakout market depends on the strength before the resistance or support level.