On a price chart, support and resistance represent points where the forces of supply and demand are in balance. Prices are driven down by oversupply and up by oversupply. Supply is synonymous with selling and is used to describe a bearish market. As a result, sellers are bears. Demand is synonymous with purchasing and is referred to as purchasing. As a result, buyers are bulls. Prices rise as demand rises, while prices fall as supply rises. Prices move sideways when supply and demand are equal, as bulls and bears compete for market control. What is Support and Resistance ?
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| What is Support and Resistance ? |
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What is Support?
The price level at which demand is judged to be adequate to stabilize the price and prevent further decreases is known as support. Buyers become more eager to buy and sellers become less inclined to sell as price falls approaching support and the currency pair becomes cheaper. Demand should surpass supply by the time the price reaches the support level, preventing the price from going below it.
If support fails to hold and the price falls below it, it means that selling have triumphed over purchasers. Price activity below support suggests greater selling pressure and/or a lack of buying motive, to put it another way. What is Support and Resistance ?
Breaking support and making new lows indicate that sellers have lowered their expectations and are willing to sell for much less. Furthermore, purchasers are hesitant to purchase until prices fall below support levels. When one level of support is broken, a lower level of support must be constructed.
Support levels are normally lower than the current price, however a currency pair can move at or near support. Furthermore, price fluctuations can be erratic, with momentary dips below support. It may seem counterintuitive to consider a support level broken unless a price bar closes below the established support level. As a result, some traders and investors form 5-10 pip wide "support zones."
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What is the definition of resistance?
The price level at which supply is deemed to be adequate to stabilize the price and prevent it from rising further is known as resistance. Sellers become more likely to sell and buyers become less inclined to buy as price approaches resistance and the currency pair becomes more pricey. By the time the price reaches the resistance level, supply should have surpassed demand, preventing the price from rising any further.
If resistance fails to hold and the price breaks above it, it means that buyers have triumphed over sellers. Price action above resistance suggests increased buying pressure and/or a lack of selling motive, to put it another way. Breaks over resistance and new highs indicate that customers have lowered their expectations and are willing to pay even more for a product. Furthermore, sellers are hesitant to sell until prices fall below resistance. Once resistance is destroyed, a new resistance level at a higher level must be built.
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Resistance levels are normally higher than the current price, but a currency pair might trade at or near resistance. Furthermore, price fluctuations can be erratic, with price spikes above resistance. It may seem counterintuitive to consider a resistance level breached unless a price bar closes above the specified resistance level. As a result, some traders and investors create 5-to-10-pip-wide "resistance zones."
Methods to Establish Support and Resistance?
Support and resistance are nearly same and have similar characteristics:
The Highs and Lows :
Previous market lows might be used to establish support. Previous market highs can be used to construct resistance.
Support = Resistance
Support turns into resistance and vice versa, according to a basic principle of support and resistance. When the price breaks below a support level, the broken support level becomes resistance as the price returns to it. The break of support indicates that supply forces have triumphed over demand forces. As a result, if the price returns to this level, supply will likely increase, creating resistance.
Trade Range
A trading range is a time period during which prices move predictably within a price range. This implies that the buying and selling pressures are equal. When the price moves above or below the trading range, it indicates that a winner has emerged. A bullish breakout over resistance (demand) is a win for the bulls, while a bearish breakout below support is a win for the bears (supply).
Support and Resistance Zones
Because of the volatility of the Forex market, creating support and resistance zones is a good idea. This simply means that instead of establishing a single price as support or resistance, a trader established support and resistance using a range of values.
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