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.
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!
Last update: 1. June
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