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Forex Trading Strategy Based on
Support and Resistance Price Levels

How to spot and identify support and resistance forex price levels

Understanding support and resistance price levels is not that complicated. When we take a look at a chart, like the one below, we will see that a price moves between certain boundaries. In trading activity, these boundaries are called “support and resistance levels”. These are the imaginary horizontal lines drawn on the highest and lowest prices in which a certain currency has been moving. The resistance levels occurs when the number of sellers outgrow the buyers, so the price starts to go down again and the support level does the opposite. This creates an imaginary ground floor and roof to a certain trading, based on the past movements of the same currency.

Support and resistance zones chart

This typical forex trading chart shows resistance and support zones, which are relatively easy to identify.

When the price reaches the resistance zone and starts to go down, this is known as a bullish pattern or trend, while a bearish pattern or trend works the opposite, when they “hit bottom” and start going back up. This usually happens on all charts and marks the support and resistance levels helping to spot the peaks more easily and to set the levels clearly.

Identify support and resistance zones

Identifying support and resistance levels on a chart is quite simple; there is no need to use statistical measures or complicated analysis, but just look at the picture of a typical trading chart like the one we just saw above, you can notice them very quickly. Even a beginner trader can identify these zones and use them while evaluating trading decisions and investments. In spite of being very easy to identify, it is not possible to measure the exact price where a bullish or bearish trend will occur, but Support and Resistance levels can be very helpful to decide whether to open or not a position, as well as the profit goal and the stop loss level. Of course, every resistance zone can be beaten under certain conditions, but it can give us a clear idea, based on historical moves.

Turn your market knowledge into profit

The financial markets are dynamic, expectations from buyers and sellers change, and this reflects on new resistance and support levels. In fact, once a resistance level is broken it can become a support level and a support level can turn ultimately into a resistance level. A successful trader knows how to identify the most probable levels to happen again or if one level is close to change. Based on his/her market knowledge and an adequate analysis and usage of the trading techniques, the trading activity will be more profitable and affordable. The following graph shows how dynamic can be the support and resistance zones during a longer period.

Euro/Japanese Yen trading chart

Horizontal resistance line marked on this trading chart for Euro/Japanese Yen currency pair.

This is an example for Euro/Japanese Yen. When looking at it from March 22 to June 26, it is easy to draw a horizontal line around the value of 114, and to observe that there are located the minimum values the price has touched during this period. From this date onwards, the price began to describe a bearish trend making that the same black line can now delimit the resistance zone where are the highest price values from June 26 until the finish of this lapse of time. As mentioned before, once a support level is broken it can become a new resistance zone.

Remember, you can use Forex trading bonus to trade with this strategy!

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"Money is not an invention of the State. It is not the product of a legislative act. Even the sanction of political authority is not necessary for its existence. Certain commodities came to be money quite naturally, as the result of economic relationships that were independent of the power of the State."

Carl Menger - the founder of the Austrian school of economics