Support and resistance are two of the most important concepts in forex trading. Support is a price level at which a currency pair is unlikely to fall below, while resistance is a price level at which a currency pair is unlikely to rise above.
Support and resistance levels are formed by a number of factors, including:
Technical indicators: Technical indicators can be used to identify areas of support and resistance. For example, a moving average can be used to identify the average price of a currency pair over a period of time. If the price of a currency pair falls below its moving average, it is said to be in a downtrend. If the price of a currency pair rises above its moving average, it is said to be in an uptrend.
Market sentiment: Market sentiment can also affect the formation of support and resistance levels. If the majority of traders are bullish on a currency pair, it is more likely to rise in price. If the majority of traders are bearish on a currency pair, it is more likely to fall in price.
News events: News events can also have a significant impact on support and resistance levels. For example, if a country’s central bank raises interest rates, it is likely to cause the currency to appreciate. If a country’s economy is doing poorly, it is likely to cause the currency to depreciate.
Support and resistance levels can be used to identify trading opportunities. For example, a trader might buy a currency pair if it is trading below a level of support. The trader would then hope to sell the currency pair at a higher price, once it has risen above the level of resistance.
Support and resistance levels are not always reliable. However, they can be a valuable tool for traders to identify trading opportunities.
Here is a diagram of a currency pair trading within a range, with support and resistance levels marked:
[Image of a currency pair trading within a range, with support and resistance levels marked]
The support level is the low point of the range, and the resistance level is the high point of the range. The currency pair is currently trading near the support level. If it breaks below the support level, it is likely to continue falling. If it rises above the resistance level, it is likely to continue rising.