How to Use Support and 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 & resistance levels that weren't broken. These points of support & resistance held because they were strong enough.

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

But what happens when these support & resistance levels are broken, well these levels change one to the other, e.g.

When a support is broken it turns into a resistance level

When a resistance is broken it turns into a support level

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

Support Level is broken it becomes a Resistance Level

In the illustration put on display below, using the GBPUSD chart, the support level that had been tested two times could not hold the third time, the sellers(bears) were able to push the price down past this support level.

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

In trading when a support level is broken/taken out, the stop losses placed below that area are also taken out, thus decreasing the energy which the buyers(bulls) 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 and Resistance Levels

Resistance Level is broken it becomes a Support Level

In the exemplification 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 and 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 technical level.

Major & Minor Resistance Levels

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

Major Resistance/Support levels

In Major Resistance/Support levels price will stay at this level for a period of time, either the price will consolidate at these major support & 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 and develop 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 and Resistance Levels - How Do I Interpret Trend Signal on Chart Signals?

Upwards Trend Series of Support and 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 and Resistance Levels - Forex Support and Resistance Levels Technical Analysis

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

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