Technical analysis of the forex market is an incomplete venture without a focus on understanding support and resistance. It is the backbone connecting all the elements of analysis in the market, from studying price trends to observing charts. And if you are thinking of coming into the market for the first time, you need to make understanding support and resistance your priority.
What are Support and Resistance?
These two terms simply refer to price-change zones. That is, the areas on a chart where prices go bullish or begin to go bearish. To break it down, a support price zone is a zone where, as a result of bullish buyers, prices go up. On the other hand, resistance is a price zone where prices go down due to the bearish actions of market players.
Support and resistance come with some uncertainties sometimes. It’s not always easy to deal with them (although MT5 trading platforms provided by MT5 brokers such as octafx provide near-accurate information). There are times, especially when there are strong trend waves, when market prices do not reflect the movement of prices across these zones. Hence the safer assumption is that prices are moving towards ‘potential’ resistance or support zones.see reviews of vantage fx
The interplay of Resistance and Support areas
There are times a resistance zone can suddenly switch to a support zone and vice versa. To put it simply, a resistance zone switches to a support zone when it’s broken; and it also goes the other way round.
This may appear nonsensical, but market forces control these trends. Bearish traders cause prices to go down to boost the potentiality of scooping in profits and make the market hit a resistance zone. But it could turn out that prices do not fall but rise, forcing traders who sold to be in a disadvantaged position. This means they will be forced to buy up again, therefore driving prices up and making the resistance zone break out. And that immediately becomes support.
However, if prices fall back again to the initial level before the sales are made, their former sellers break even, and a good number of them might tighten their short position to minimize losses further.
In the same way, market players carrying out activities with the hope of forcing prices to shift towards the support zone can still be disappointed when prices do not rise as high as expected and the result is a reverse offshoot of the trend. It forces the support zone to break out and become resistant.
Support and resistance on the chart
Many support and resistance zones are spread on the chart, with the support finding its way underneath the current market price and the resistance above the market price. This means that price rides between the two zones, breaking through each zone and switching their positions.
Support and resistance are products of the activities of players on the forex market. This means that the sentiments of the players control the way market prices swing, leading to more profits or losses. If you wish to learn more and you want to contact a broker for more information, ensure that you talk to a licensed broker. Reviews like this alpari review can help you learn more about licensed brokers.