The concept of support and resistance is one of the basic concepts required for forex trading. If you want to become a successful forex trader, then you must understand how this concept works. According to this concept, the market will experience resistance in certain areas. The market will struggle and bounce at times according to the concept of support and resistance. Before searching for the areas of support and resistance, you need to know about the swing points. Bear in mind that big changes in directions are the swing points.
In addition, price action will have huge valleys and peaks, where valleys refer to swing lows and peaks refer to swing highs. A single candle if up or down will not make it a swing point. You need to have a number of candles in the same direction before changing the directions altogether. To find the areas of support and resistance, you need to recognize the swing points first. The idea according to which the market is handled by an imaginary force is support. There are no major differences between support and resistance.
In fact, looking for the swing points is the most common and the best way to visualize and draw the levels of support and resistance. After finding the swing points, you must draw lines as close as possible to the candles. It does not matter whether it is to the bottom or top of the swing. However, you will have to make sure that you do not cut through the candles. The levels will lose respect in the market if they are broken. Hence, it is best to keep them updated on a regular basis. There are two techniques to check the area power of support and resistance. The first is by checking the size of the swing. The second technique is to check the number of swings on the same level.
The best way to trade using support and resistance is to look for the breakout. The breakout happens after a candle closes and crosses another level of support and resistance.
Some important facts about support and resistance are as below:
- Resistance will transform into support if the prices pass through it.
- The strength of the area for support and resistance depends on the price tests that the support and resistance can undergo without breaking.
- After a resistance or support break, the follow-through strength depends on the strength of the broken resistance or support.
If you are planning to invest in a short-term plan, then determining the future value by using some technical tools before investing will help you get good returns. This is because you will be able to know what the approximate value of your investment will be in the future. There are various techniques using which you will be able to identify the support and resistance. Irrespective of the method, you can prevent the price from moving in the same direction.