Support and Resistance – The Strategy of Forex Price Movement
As the market is open and new traders are starting to enter trades at this hour, traders have begun to take profits earlier and earlier as the market is flat or falling. There is some truth to this, but only for those who understand the concept of Support and Resistance levels in the Forex Market as well as the price behaviour near those levels. By understanding the difference between these two concepts can you use these price levels to protect yourself from losses or maximize your gains.
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Let’s take a look at these price levels and what they mean. Support and resistance are price levels where the market has stopped moving, but still hasn’t stopped for a time. For example, if the market rises above resistance at 1000, that means it has risen above the previous price level, but not for long. If the market drops below support at 997, that means it has dropped below the support, and may turn into a downside trend. If it rises again or turned around when he hits the support level, it will most likely continue his upward trend move!
The resistance level is the direct opposite, it is always placed above the current price, and works against a upside trend. The price will most likely stop his upward move at these levels, maybe completely to turn around into a downside move, maybe just for a short time till he overcomes the resistance and keeps moving upwards!
As traders, we can identify if the market is flat or in a decline by taking a look at the resistance and support levels, and the price behavior in the past, this is also called Price Action trading! The best way to do this is to observe if the market moves up or down.
If it moves down, then there is likely a trend in the market and it is likely a move down in the near future. If it moves down in a flat market, it’s a bearish signal. If it moves down in a flat market, it’s likely a trend will continue and the market will move down in the near future. If you are able to identify a bearish or trending pattern, you can play the game of price movement. The theory of Support and Resistance lines can easily be proven by yourself, just open your favorite chart software and draw these lines, went back in time and you see the relevance of these levels easily!
Beside Support and Resistance, you can also use other tools in the same way as Trend Lines as well as the Fibonacci Retracement, both are great tools to trade price action and determine profit and exit zones inside a chart!
We can see how we can play the game of price movement even if we don’t have the correct information.
Identifying the price movement patterns is a simple strategy to identify trends in the market.