29 Dec

Support and Resistance in Trading

admin Learn Forex Trading 0 Comments
What Is Support?
Support means the price level at which demand is thought to be strong enough to prevent the price from declining or falling further. The logic indicates that as the price declines or falling towards support and gets cheaper, sellers become less inclined to sell and buyers become more inclined to buy. By the time the price reaches the support level, it’s believed that demand will overcome supply and prevent the price from falling below support.
Support does not always hold above support and a break below support levels that the bears (Sellers) have won out over the bulls (Buyers).  A decline below support level indicates a new willingness to sell or/and a lack of incentive to buy at this level. Support level breaks and new lows signal that sellers have reduced their expectations and are willing sell at even lower levels. Buyers could not be pressure into buying until prices declined below support level or below the previous low price level. Once support level is broken, should be another support level will have to be established at a lower level.
 
Where Is Support Established?
Support levels are usually below the current price. Technical analysis is not an exact science or method for trade and it is sometimes difficult to set exact support. In addition, price movements can be volatile and below support level briefly. Sometimes it does not seem logical to consider a support level broken if the price closes 1/8 below the established support level. That’s why; some traders and investors establish support zones.
 
What Is Resistance?
Resistance means the price level at which supply is thought to be strong enough to prevent the price from advances or rising further. The logic indicates that as the price advances or rising towards resistance level, buyers become less inclined to buy and sellers become more inclined to sell. By the time the price reaches the resistance zone, it’s believed that supply will overcome demand and prevent the price from rising above resistance.
Resistance does not always hold below resistance and a break above resistance signals that the bulls (Buyers) have won out over the bears (Sellers). A break above resistance level shows a new willingness to buy or/and a lack of incentive to sell. Resistance level breaks and new highs levels indicate buyers have increased their expectations and are willing to buy at even higher prices. Sellers could not be pressure into selling until prices rose above resistance level or above the previous high price level. Once resistance level is broken, another resistance level will have to be established at a higher level.

Where Is Resistance Established?
Resistance levels are usually above the current price.  Price movements can be volatile and rise above resistance level briefly. Sometimes it does not seem logical to consider a resistance level broken if the price closes 1/8 above the established resistance level. That’s why; some traders and investors establish resistance zones.

Why does it happen? 
These support and resistance levels are seen as important in market psychology, Demand and Supply. Resistance and Support levels are at which a lot of traders are willing to Sell the currency or stock or share (in the case of resistance) or buy it (in the case of a support). When these trend lines are broken, the Demand, Supply and the psychology behind the stock or currency or share’s movements is thought to have shifted, in which case new levels of Resistance and Support will likely be established. 
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