What if you were a successful forex trader? If you were, you would use certain technical indicators which your were able to interpret with a high degree of certainty. The vast majority of currency traders use technical analysis as a basis for entering and exiting trades. Support and resistance are one of the technical indicators used by forex traders for trade entry and exit. Let us take a closer look at support and resistance.



Support and Resistance is the foundation of most of the top trading systems. Support and resistance levels represent pauses in the trend when investors reconsider all information.  The idea of support and resistance is vital to understanding and interpreting the forex market.  Support and resistance are basically price bands where the price will probably stop falling or rising respectively. Support and resistance are created because price has memory.  Support and resistance are by far the most important forex trading technical indicator you will ever find, and the best forex trading option if you want to be on the right side of the market.

Support and resistance are like a floor and ceiling, with prices contained between them.  Support like resistance is rarely a precise price; it is more often a relatively contained price range, frequently in the vicinity of past technical patterns. Support and resistance levels on bar and candlestick charts are a major component in the study of technical analysis. Support and resistance come in all varieties and strengths. The length of time that a support or resistance level exists helps to determine the strength or weakness of that level. When a level of support or resistance is penetrated, price tends to thrust forward sharply as the crowd notices the breakout and jumps in to buy or sell.  When a level is penetrated but does not attract a crowd of buyers or sellers, it often falls back below the previous support or resistance. 

Support

Support is defined as a price level below which it is supposedly difficult for a currency pair or market to fall.  Additionally it is a price level at which a currency pair or other security stops falling at least temporarily, hence the name. Support represents the level at which buying pressure is strong enough to absorb and overcome selling pressure. Support defines that level where buyers are strong enough to keep price from falling further. Support lines turn into resistance and resistance lines turn into support.

Resistance

Resistance is the opposite of support and represents a price level or area over the market where selling pressure overcomes buying pressure and a price advance is turned back.  Resistance defines that level where sellers are too strong to allow prices to raise further.  By the time the price reaches the resistance level, it is believed that supply will overcome demand and prevent the price from rising above resistance. 

So we have learned that:  Understanding the concept and significance of support and resistance is important for profitable forex trading.  One aspect of its unique quality is that support and resistance is defined as an area or a zone not a single price level. One of the basic precepts of support and resistance is that once a support level is violated it becomes a likely new resistance level and when a resistance level is penetrated it becomes a new support level.

We're finished but you're just beginning. Your next steps should be to continue to research different forex technical indicators. Open a forex demo account practice trading with support and resistance and other technical indicators. By doing this you will prepare yourself to become a successful forex trader.