Two terms – support and resistance, are widely used to describe the CFD chart. Newbies think that these terms are very complicated to understand because they don’t realize the importance, where to buy, and where to sell. Lack of sufficient knowledge about these terms can create the situation troublesome.
Basics of support and resistance in the Forex chart
When the pattern of the chart is similar to a zigzag upward movement (or bullish movement), you can identify the support or resistance level. When the price of a currency moves up and reaches the peak value, it starts falling. This peak value is called resistance.
On the other hand, when the price of a specific currency moves downward (or bearish movement), it reaches to the lowest value and starts moving upward again. The lowest value, in this case, is called support.
Forex traders buy their currencies at the support level, where the currency’s value reaches the lowest. The investors sell the purchased currency when the value reaches the resistance level. It is called that the resistance level is the surplus of the FX sellers, and the support level is the surplus of the buyers. Every day, even in the micro-scale, the support and resistance are formed because the prices move up and down regularly.
Many people use support and resistance level in two ways –
- Bounce – Investors buy when the currency’s price starts falling toward the support and sell when the currency’s price starts rising toward the resistance.
- Break – Investors buy when the currency’s price begins breaking up through the resistance level and sell when the currency’s price begins breaking down through the support level.
How can you plot the support and resistance level?
When you enter a trade, you have to remember that resistance and support levels are not unique numbers. From time to time, many traders see that the resistance or support level is broken. This is why they use candlestick charts, in which the resistance and support levels are presented by candlestick shadows. To know more, read articles on Saxo. Visit company website and spend time by reading premium articles posted by the top traders in Singapore. Soon, you will feel more confident with your trading approach and this should boost your skills in a professional manner.
How to know that the resistance and support levels are broken?
Nobody can answer this, but some of the investors argue that the resistance or support level can break if the market goes close to that level. But the problem is the real situation is not so similar.
Still, there is a way. To find the zones, you need to plot the resistance and support level in the Forex chart instead of the candlestick graph. Remember that the line chart will show you only the closing price, but the candlestick chart will reveal the lows and highs. These highs and lows can be misleading sometimes.
Some interesting facts about the resistance and support levels
There are some interesting facts about the resistance and support levels, which will make the situation more understanding, and investors will easily realize the chart.
- When the value passes through the resistance value, it can become support.
- It the price tests any level of support or resistance without any breaks, there is a greater possibility of a stronger area of resistance and support.
If you are still confused about the resistance and support areas, you can practice it with the demo account.
Support and resistance levels in the Forex chart are the primary concepts that every FX businessman should realize. Possessing sufficient knowledge about these levels will help an investor to analyze and execute his trade. In a nutshell, the support level indicates a price where the bearish movement stops and starts moving upward. On the other hand, the resistance level indicates a price at which the bullish trend stops and starts moving downward.