Forex Trading Tips

by Nathaniel Dubois
Contributing Author

There is so much to learn for those who wish to trade in the forex market.  A good place to start your forex trading education is with the study of support and resistance.

Two of the most widely discussed facets of technical analysis are the concepts of support and resistance. Although this study is very often regarded by beginning traders as complex, our purpose is to simplify the subject by focusing on the very basics of what beginning traders will need to know.  A thorough study of support and resistance is not possible here, but there is a mountain of information available on the subject.

When you view a forex trading chart, you’ll see that price doesn’t usually move in a straight line.  A price will go up, then down, then up again, giving the appearance of a zigzaged line.

When you draw a line connecting the lowest price points, that is your support line.  To draw a resistance line, you would connect the highest price points.  This is only a very basic idea to provide a picture; there is more to determining which bottom points and which top points need to be considered.

Since support is shown on a chart as a line connecting specific low points, it is easy to see how it tends to function as a floor and prevents the price from going lower.  More often than not, prices will tend to bounce off this level rather than go through it.  When the price does break the support level, it generally continues dropping until is reaches another support level.

One can view the resistance level as being the opposite of a support level.  At this level, the price tends to find resistance as it climbs higher.  And just as with support, price tends to bounce off this level rather than break through it.  But once price manages to break through the resistance level, even by the smallest of amounts, it will more than likely continue rising until it finds another resistance level.

If a price breaks past a support level, that support level often becomes a new resistance level. The opposite is true as well, if price breaks thru a resistance level, it will often find support at that level in the future.

Support and resistance levels many times represent the prices that are most influential to a currency pair’s direction, and are therefore used by many technical traders to determine their entry and exit prices.

At first the concept and explanation behind identifying these levels seems easy, but as you’ll find out, support and resistance can come in various forms and it is much more difficult to master than it first appears.

One can identify many, many price patterns using only support and resistance.  And those patterns will appear in any of the time frame charts.  One can also develop an entire trading strategy based entirely on support and resistance levels.  It is also possible to make a handsome living trading forex once one masters these concepts.  It is recommended that you begin your forex trading education by mastering the study of support and resistance.