Did you know that support and resistance are very important terms in technical analysis? These are among the most powerful techniques used by professional traders around the world.
Luckily, you’ve got us to explain everything in the simplest way possible.
Support and resistance are two different terms. So, what is support? Well, when the price falls and bounces back, the lowest level reached is support. Pretty simple! Similarly, when the price rises and pulls back, the highest level reached is resistance.
The above picture clearly shows what support and resistance are.
Making Money Using Support and Resistance
In simple terms, one of the major ways to make money in the financial market is to buy low and sell high. This is exactly where the knowledge of support and resistance becomes vital.
Even in an up trending market, there are downward moves. With the knowledge of this term, you can actually buy around the bottom and sell around the top of a bullish move.
The main idea here is to buy after the occurrence of support and sell after the occurrence of resistance. You should only make trading decisions after the formations of support and resistance because it would be inappropriate to predict them before they have occurred on the market.
You might still be confused about how exactly you can find out about the occurrence of peaks and valleys. Technical tools like Fibonacci, trend line, channel, moving average, RSI, etc. are used for this matter. All these tools will be explained in the coming chapters.
It should be taken as a price zone rather than a particular price level.
Related Article: Introduction to Forex Trading
Support zone and resistance zone
Above chart has a resistance zone and a support zone rather than a resistance at the particular level or support at the particular level.
Now, you can start plotting support and resistance onto your charts!