Support and Resistance

Support and Resistance

In Forex trading, support and resistance refers to levels where price is likely to pause, bounce or even reverse. Support is a lower price point or zone where the currency pair is considered ‘cheap’, spurning buying interest. Resistance is an upper price point or zone where the pair is considered ‘expensive’ and is likely to encounter sellers:

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In the above example, the Australian Dollar is finding buyers around 7150, but encountering strong selling interest above 7250 – note pair spikes above 7250 resistance five times, but is unable to close above there. It is also worth noting that when there’s an hourly close below 7150 support, pair is then unable to close back above the level – former support is now acting as resistance:

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This is a fairly common occurrence in Forex trading – levels that previously encouraged buying interest will nearly always encourage selling interest after they break down (and vice versa).
You’ve heard the old saying “Buy Low, Sell High”? Forex traders look to sell into resistance and buy into support, this leads to higher probability setups, allows the trader to set tight stops and leaves plenty of room for rewarding trades.

Now we’ve had a look a horizontal support and resistance, let’s take a quick look at trend resistance and support:

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This is the trend line that supported USDJPY from September 2012 – January 2016. Note pair finds buying interest whenever price nears trend support.

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Here we have the recent down trend in GBPUSD, note pair is unable to close the week above trend line resistance and eventually turns lower.

Remember: If you want high probability, rewarding setups – Buy low, sell high – buy into support, sell into resistance.

Why not try some of these setups on your own $50,000 forex demo account?

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