Support and Resistance Areas

This is one of most widely used concepts in Forex and it refers to levels on a chart that tend to act as barriers which prevent the price of an asset from getting pushed past a certain point in a particular direction.

This learn support & resistance levels tutorial will explain the analysis of Support & Resistance Levels and give examples of Support and Resistance Areas on charts.

Support Levels

This level prevents the price of an asset from getting pushed downwards & hence it's regarded as a floor because it halts the market from moving downwards past a certain point.

Example of Support Level on Forex Chart:

On the example below you as a forex trader can see that price moved down until it hit a support

Once price hit this technical level it slightly bounced back upward, then resumed going downward until it hit the support again.

This process of hitting a level and bouncing back is called testing the support level.

The more times a support is tested and the market bounces up the stronger this support level is - the exemplification laid-out below this support level was tested three times without breaking. Finally the market trend reversed and started heading in the opposite trend direction.

Once a this support level has been determined traders use it to place their orders to buy the currency at the same time putting a stop loss a few pips below it.

Support Level on a Forex Chart - Example Illustrations of Support Levels on Chart

In the above exemplification the market did not move below this area. It is an area where price of the currency can not break lower.

These regions form good points where a currency in a downward trend is likely to reverse and get support & start moving upward.

The demand to buy the forex currency pair at this point will be greater & therefore providing a good point to begin a buy trade, while placing stops some pips just below this support level.

This support level is also use by short sellers as a target where to set their take profit orders for their short sell trades.

This is another reason why the trend is likely to reverse or consolidate at this specific point because once the sellers(bears) close-out their sell positions then momentum of the downward trend reduces and a price consolidation will happen after which the direction of the trend is likely to reverse.

Resistance Area

This level prevents the price of an asset from getting pushed upwards these levels are therefore regarded as the ceiling because these levels prevent and prohibit the market from heading and moving upwards

Explanation of a Resistance Level on Forex Chart:

On the example below you as a forex trader can see that price moved up until it hit a resistance level.

Once price hit this resistance level it retraced slightly then resumed going up until it hit the resistance again.

The resistance level holds and is tried and tested for 5 times without breaking/giving in.

The more times a resistance level is tested the stronger the it is.

Once this resistance level has been determined traders put their orders to sell at this level & at the same time putting a stop loss a few pips above it.

Resistance Levels on a Forex Chart - Example Illustrations of Resistance Levels on Chart

In the above exemplification the market did not move above this area. This region shows an area where price of the currency can't break above.

These levels form good points where a currency in an upward trend is likely to reverse after some resistance & start moving downwards in the opposite direction.

This portrays that the demand to sell the forex currency pair at this region will be greater & therefore providing a good point to begin a sell trade, while placing stops some pips just above this resistance level.

This resistance level is also used by the buyers(bulls) as a target where to place and set their take profit orders for their bullish trades.

This is another reason why the trend is likely to reverse or consolidate at this particular level because once the buyers(bulls) buyers close-out their sell their buy trade transactions then momentum of the upward trend reduces and a price consolidation will happen after which the direction of the trend is likely to reverse & start moving down.

Study More Lessons and Tutorials & Topics:

Trade Forex Trading

Support and Resistance Areas

Support Levels

Resistance Area