Support Level
A price level at or below which demand for a currency is expected to exceed supply, preventing further downward price movement.
When the price reaches a support level, buyers are likely to enter the market, pushing the price back up.
Resistance Level
A price level at or above which supply for a currency is expected to exceed demand, preventing further upward price movement.
When the price reaches a resistance level, sellers are likely to enter the market, pushing the price back down.
Identifying Support and Resistance Levels
Technical Analysis: Identifying previous price highs and lows, trendlines, and moving averages can help determine potential support and resistance levels.
Market Sentiment: Strong buying or selling sentiment can lead to the formation of support or resistance levels.
Economic Data and News: Major economic events or news releases can trigger significant price movements and affect support and resistance levels.
Using Support and Resistance Levels in Trading
Trading Opportunities: Traders can look for trading opportunities when the price bounces off a support or resistance level, indicating a potential reversal.
止损和止盈订单: Support and resistance levels can be used to place stop-loss and take-profit orders, managing risk and protecting potential gains.
Trend Trading: Identifying and following support and resistance levels can help traders stay with the market trend and potentially avoid losses.
Limitations of Support and Resistance Levels
Breakouts: Prices can sometimes break through support or resistance levels, indicating a change in market sentiment or trend.
False Breakouts: Prices may briefly penetrate a support or resistance level but then fail to sustain the move, creating false signals.
Changing Market Conditions: Support and resistance levels can shift over time as market conditions change.
It’s important to note that support and resistance levels are not foolproof indicators and should be used in conjunction with other technical and fundamental analysis techniques for more accurate trading decisions.