Trading Support and Resistance Levels

Support and resistance are two of the most important concepts that forex traders can apply. These concepts will help you to determine when a new trend is starting, when an old trend is reversing, and where and how to manage your risk.

Support is a price at which a currency pair stops going down. It truly is that simple. It's a price lower than the current exchange rate below which a pair isn't moving. Think of support as a floor for the exchange rate. It's a price level below which you can place a stop if you're already long or considering getting long a pair.

An exchange rate might be moving lower, but eventually it reaches a price at which buyers perceive it as attractive. They start buying, equalizing or overcoming the sellers. The buying causes the price to stop going lower and start moving higher.

Resistance is very similar to support in concept. The only difference is that it's above the current market price.

Resistance is a price at which a currency pair rate stops going up. It's a higher than the current exchange rate above which a pair isn't moving. Think of resistance as a ceiling for the pair. It's a price level above which you can place a stop loss if you're already short or considering getting short a pair.

An exchange rate might be moving higher, but eventually it reaches a price at which sellers perceive it as overvalued. They start selling, equalizing or overcoming the buyers. The selling causes the pair to stop going higher and start moving lower.

Support and resistance are two of the most fundamental concepts in forex trading. Yet, too many traders don't know how to accurately identify support and resistance. What's more, many traders apply support and resistance in the wrong way.

One of the biggest benefits of the point and figure method of trading the forex is that support and resistance levels are easy to identify. It doesn't matter the timeframe you are trading. Whether it's intraday, swing trading, or long-term trend following, point and figure charts can help you to clearly see support and resistance levels.

In addition to making the task of identifying support and resistance easier, the point and figure method gives you a set of rules with which you can objectively apply the concepts of support and resistance to your trading. From clear buy signals and sell signals to determining price targets, point and figure charts will give you a whole new perspective on trading the forex market.