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Introduction to Trading

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Currency Pair Trading

Technical Analysis

Introduction
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Technical Indicators
Support and Resistance
Continuation Patterns
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Fibonacci and Elliot Wave

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Support and Resistance

Understanding Support and Resistance plays a key role in formulating a successful trading strategy. The identification of support and resistance in an asset will tell you what the supply and demand is, as the price is set by extreme demand (up) and supply (down) with the support and resistance lines in a chart illustrating the battle between the purchasers (the bulls) and the sellers (the bears).

Support

A support level is a price level drawn horizontally where demand is considered to be strong enough to prevent further declines in price. This is where investors think that prices will increase.
Once the support level is broken, a Sell Signal is generated. As the price declines towards the support level and becomes cheaper, buyers are more likely to buy and sellers are less likely to sell. Once the price reaches the support level, it is thought that demand will overcome supply and stop the price from dropping below support.

Resistance

A Resistance level is a price level where selling is considered to be solid enough to stop further increases in price. Once the price rises towards the resistance level, sellers are more likely to sell and buyers are less motivated to purchase. As the price meets the level of resistance, it is expected that supply will be greater than the demand and stop the price increasing over and above the resistance level.

Once the resistance level has been broken a Buy Signal is generated. Due to volatility in the certain assets, many traders like to establish zones of resistance.

Breaking Levels

When a support or resistance level is broken, it is an indication of:

A trends’ reversal
A trends’ acceleration

When the resistance level has been broken, it becomes the support level; reversing the roles. Likewise, once the support level has been broken, it becomes the resistance level. Support equals resistance and vice-versa.

Usefulness

In technical analysis, support and resistance is a basic but useful tool for many traders and the first port of call when it comes to making investment decisions. Successful support and resistance analysis will help identify when trends are reversing or accelerating and will aid greatly in improving a trading strategy.

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