| The beauty of support and resistance lies in its | | | | Here is an example |
| simplicity. Its validity has been tested over and over | | | | |
| again throughout history and remains one of the most | | | | Strength of the Support and Resistance Line |
| widely used analysis tool of all time. It works because it | | | | Each time the price of the currency pair touches the |
| is based on simple crowd psychology. And as much | | | | support or resistance line, it strengthens its validity. A |
| as we don’t like to admit it, we are basically the | | | | psychological barrier exists at that price which will |
| same irrational creatures we were a few hundred | | | | prevent it from dipping below the support line or |
| years ago. | | | | crossing over the resistance line. |
| If you could predict where the market is heading, you | | | | The support and resistance are given greater weight if |
| would be a millionaire. Unfortunately, no one has | | | | it happens to lie on an even number. The psychological |
| developed an indicator that will predict the future. Many | | | | pressures are greater at these even numbers. |
| indicators have been created that will give you a | | | | Don’t Forget the Stops! |
| probable direction of the market, and among them, the | | | | Everything we have been discussing thus far is based |
| concept of support and resistance has risen to the top | | | | on history and probabilities. The price can easily dip |
| of the pile. | | | | below the support levels, and conversely, it can easily |
| Support is a price level where the market has difficulty | | | | break through the resistance levels. You are a smart |
| dipping below it because the demand is sufficiently high | | | | one, and already know how to protect yourself from a |
| at that level. Support levels are always on or below | | | | disaster. You guessed it. Always have a stop loss. |
| the current price. In other words, the support line is | | | | There is absolutely no excuse not to include a stop |
| where the price stops falling. Here is an example: | | | | loss with your order. Forex is a game of percentages. |
| | | | You want to minimize your losses if the market does |
| Resistance is the opposite of support. It is a price level | | | | not go your way, and let your winners define your |
| where the market has difficulty surpassing that price | | | | performance. It doesn’t matter if you lose 10 times |
| level because the selling forces are strong at that | | | | more than you win, as long as your winning trades |
| price. Resistance levels are always on or above the | | | | profit more than your losing trades in the long run. |
| current price. It is where the price level stops rising. | | | | |