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Chart Analysis

Support and resistance

Support and resistance are the foundation of all chart formations. Identification of key support and resistance levels is an essential ingredient to successful and profitable trading.

Think of currency prices as the result of a head-to-head battle between a bull (the buyer) and a bear (the seller). The bulls push prices higher and the bears push prices lower. The direction prices actually move reveals who is winning the battle.

Support is commonly defined as "a price level or area at which the demand for currency traders will likely overwhelm the existing supply and halt the current decline." Resistance is defined as "a price level or area at which currency traders will likely overwhelm the existing demand and halt the current advance."

Note that the words "or area" are part of the definition. Support and resistance are not "broken" by a one-penny violation. They are areas. Support and Resistance levels

Trading Strategy on tests of Resistance

One of the most-common and best-known trading strategies is this: "Buy at the support level and sell at the resistance level." As you can see from the chart below, the ability to identify a level of support can also coincide with a good buying opportunity

Other Indicators In technical analysis, many indicators have been developed for to identify barriers to future price action. These indicators seem complicated at first and it often takes practice and experience to use them effectively. Regardless of an indicator's complexity, however, the interpretation of the identified barrier should be consistent to those achieved through simpler methods.

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