The concept of support and resistance is very important to traders. Basically, support and resistance are areas where price action is expected to hit obstacles.
Support is a price level at which a falling price tends to slow down or reverse. This means that the price is more likely to bounce off this level than break it. However, once the price passes this level, it is likely to continue falling until it finds another support level.
Resistance is the price level at which a rising price tends to slow down or reverse. The price would rather bounce off this level than break it. However, a break above this level opens the way for further price gains until it finds another resistance level.
Support and resistance levels allow traders to navigate the Forex resistance lines. By marking these levels on the chart, you will see the structure of the market and will be able to predict the direction of the next price moves, as well as their size.
The idea is that these levels are likely to stop price action and cause it to reverse. As a result, this is a common approach to open buy-on-support and sell-on resistance. If you want to benefit from trend trading, you will buy at support in an uptrend or sell at resistance in a downtrend. If you do not trade with the trend, you can still use the support and resistance levels as entry points and close positions at the next support / resistance levels.
Indeed, support and resistance levels also tell a trader where to close a trade. Thus, if you have an open sell position and the price is approaching the support level, you may want to consider closing your trade. The same is with a buy trade, with the only difference that after opening a buy position, you need to monitor resistance levels.
Support and Resistance can be located on any timeframe. However, keep in mind that the larger the timeframe, the more important the support / resistance level is. Also, even though we are talking about levels here, trading is not an exact science, so you really need to think of support and resistance as an area. When you have identified support or resistance, you need to surround it with a couple of pips. This will help you make your trading more accurate.
