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Support and resistance is a very basic concept, but it is interesting how many traders have their own interpretation of how to use them. But no matter how support and resistance are applied, they have simple foundational keys that will lead you into profitable trades over and over. So let's look more closely at support and resistance now.
First, understand that support and resistance (S&R) are formed as the market moves and then turns around. If the market was moving up and then reversed, the highest point would have formed resistance. The opposite is true for when the market forms support.
S&R are important for this reason - the market doesn't just reverse direction on a whim. As the price falls, eventually it is going to reach a level where buyers can buy the currency at an excellent deal. It is the same as shoes going on sale - drop the price low enough, and people are going to buy.
So if the market fell so low that buyers thought it was a good deal, they would buy, which would move the price back up. What do you think will happen when the market falls to that price again? Buyers again will buy at bargain prices.
That is how support is formed. When the market reaches the support again, there is a good chance buyers will push the price back up.
The unfortunate part is that support and resistance is an area of prices, not necessarily a particular price. So let's say that support is at 1.3000. Does that mean that price won't go to 1.2999 or maybe even 1.2990 before turning around? No, price could very easily fall to even 1.2980 before turning around.
So trading with support and resistance is not a science, it is definitely an art. And the only thing that can make you comfortable trading with them is to learn all you can - and then practice.
About this Author
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