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Support and Resistance

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Support and resistance are widely used concepts in FX trading.  We can see them in FX reports. What are they? And how to use them in FX trading. In this topic, we will define support and resistance as well as their applications

Definition


Support refers to price on a chart that tends to act as a floor by preventing the price of an asset from being pushed downward. On the other hand, resistance refers to price on a chart that tends to act as a ceiling by preventing the price on an asset from being pushed upward.

Change In polarity


When the price breaks through resistance, that resistance could potentially become support. Inversely, when the price passed through support, it could become resistance.

Some tips


- The more often price tests a level of resistance or support without breaking it, the stronger the area of resistance or support becomes.

- Support and resistance are not exact numbers. You should think of them more of as zones or areas rather than exact numbers.

- When a support or resistance is broken, the strength of following move depends on how strongly the broken support or resistance.

- Avoid false break: The example below describes a false break down support level. To avoid a false break, you need to wait a end of day candle instead of watching intraday candles. In addition, you should combine with momentum indicators to confirm whether true break or not.

The example belows give you an idea about strategy to trade a true break. A sell order should be placed on the pullback near support level of previous trading range that becomes resistance level.