How to Use Support & Resistance to Trade Forex

How to Analyze when a Support Level or Resistance Level is broken - In analysis, When a support level is broken it becomes resistance level and When a resistance zone is broken it becomes support zone.

In the above previous lesson trades examples we have looked at support and resistance levels that were not broken. These points of support and resistance held because they were strong enough.

However, sometimes support & resistances levels aren't strong enough to stop movement of the market price heading in a certain direction. When price moves past these support and resistance points we say these levels have been broken. That is why we always use a stop loss order when trading these levels, just in case these levels do not hold.

But what happens when these support and resistance levels are broken, well the levels change one to the other, for example

When a support is broken it becomes a resistance level

When a resistance is broken it becomes a support level

Using Charts, The Examples Below Show an Illustration of What Happens When These Support & Resistance Levels Break:

Support Level is broken it becomes a Resistance Level

In the example below, using the GBPUSD chart, the support level that had been tested two times could not hold the third time, the sellers were able to push the price down past this support level.

However, the price bounced back up again, but this time the market price couldn't go up beyond this line. The price was there after quickly pushed down by the sellers. This was because the line that was a support level had now turned into a resistance level.

In trading when a support is taken out, the stop losses placed below that level are also taken out, thus reducing the momentum that the buyers had. This give sellers an opportunity to short sell the currency & place their stops just above this level which now turns into a resistance level.

Support Level is broken it becomes a Resistance Level - How to Analyze Support & Resistance Levels

Resistance Level is broken it becomes a Support Level

In the example below using the EURUSD chart, the resistance zone that had been tested two times could not hold the third time, the bulls were able to push the price up past this resistance level.

When the price tried to go down again it could not go lower than this level. The price was there after quickly pushed further upwards by the buyers. This was because the line that was a resistance zone had now turned into a support level. This is what happens in Forex trading or stocks trading, when a resistance level is broken, it turns into a support level.

Resistance Level is broken it becomes a Support Level - Support & Resistance Levels Technical Analysis

Traders who had closed their short sell trades will now open long trades and place their stop loss orders just below this level.

Major & Minor Resistance Levels

In currency charts the resistance zones and support levels formed are either major resistance/support zones or minor resistance/support levels.

Major Resistance/Support levels

In Major Resistance/Support levels price will stay at this level for some time, either the price will consolidate at these major support and resistance levels or form a rectangle consolidation chart pattern when price gets to this point. A major support or resistance level will be tested several times before it is either broken or it holds and the price does not get to move past this resistance/support zone.

The above examples are good example of major Resistance and Support Areas.

Minor Resistance/Support levels

In minor resistance and support levels the price will quickly form these points in the short term and the price also moves quickly past these resistance & support areas.

Upwards Trading Trend: The pattern of these minor resistance and support levels will form a series of levels whose general direction is upwards. Upward Trend Series of Support & Resistance Levels - How Do I Interpret Trend Signal on Chart Signals?

Upwards Trend Series of Support & Resistance in Up Trend

Downwards Trend: The pattern of these minor resistance and support levels will form a series of levels whose general direction is downwards.

Downward Trend Series of Support & Resistance Levels - Forex Support & Resistance Levels Technical Analysis

Down-wards Trend Series of Support & Resistance Areas in Down Trend

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