Currency Trading Trend Types - Support & Resistance Indicators
Support and resistance levels are the lines that appear above and below the chart, and behave as a temporary border to the currency price.
Before you start trading currency, you should learn all of the aspects that concern support and resistance levels depicted here.
Support levels indicate the lower part of the chart, where traders feel the prices will move higher. This is the market floor that includes a majority of buyers.
If support levels are broken, it often leads more traders to sell the currency, and then the support level becomes a new resistance level. This is because even if the currency trading price rises again near the former support level, it doesn’t surpass it because at that point traders sell their currency in an attempt to recover their losses and break even. This is why the pattern that will be seen in those cases is a rise in currency price up until the new resistance level, and another drop. This occurs for a while after the break of the support level and is usually misunderstood by currency trading investors.
Resistance levels are pretty much the opposite of support levels, and make up the ceiling of the chart. When the price level rises close to the resistance levels, traders will tend to use the take profit order, and then prices will drop again.
When a resistance level is broken, it often continues on to climb in value, as the currency price becomes stronger. This rise is however unstable because it is largely based on stop loss orders that investors place, and can result in a nearing drop in currency price.
Posted by Richard Hollar