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What are resistance and support? How to quickly know

Resistance and support are some of the first introductory lessons that any trader needs to know. However, knowing does not mean you can completely use it. Therefore, the article below Forex Trading would like to introduce to you some information about these lines. Please refer to know more about this type of sugar!

General introduction to resistance and support lines in Forex

Demand and supply are the price areas where the price reverses to increase or decrease. At the same time, it is likely to repeat in the future. To know more about this type of road, please refer to the information below:

What is support and resistance?

Demand and supply are some of the basic concepts in technical analysis. To help identify the price range where the price trend is likely to reverse or slow down before continuing the trend.

A support level is a type of price level at which a downtrend is expected to reverse to the upside. When the price drops to the support level, demand tends to increase, pushing the price back up.

Resistance is the price level at which the uptrend is expected to reverse to the downside. When the price rises to the resistance level, supply tends to increase. This process will make prices difficult to overcome.

Factors that create support and resistance lines

Resistance and support in Forex are formed by many different factors, including:

Trading volume: Price zones with large trading volumes often tend to become strong demand and supply zones.
Market psychology: Crowd psychology can affect investors’ buying and selling behavior. From there, create a support or resistance zone.
News events: Important news events can be one of the factors that influence market sentiment. From there, create a temporary support or resistance zone.

See more: Everything you should know about Forex momentum!

Meaning of support and resistance zones

demand and supply is a type of tool that has many different meanings. Below are some meanings that traders can refer to:

Investors can easily identify buying and selling points. When you see the price reaching the support or resistance zone, you can buy or sell.

This type of zone can be used to set stop loss and take profit points for various types of trades.

Understanding it will help investors better manage risk throughout the transaction period.

How to quickly identify resistance and support zones

To know how to use demand and supply zones in trading strategies. Investors need to know how to identify support and resistance zones. Below are some ways you can do it:

Determine support and resistance lines based on the price range you are trading

Demand and Supply levels are price zones that appear on the chart. Candle shadows are often used to identify this zone. The resistance area will be calculated from the highest price of the upper candle shadow area. The support zone type will be calculated from the lowest price of the area on the lower shadow of the candle. If you see many candle shadows appearing in this area. This proves that this is the these zones.

Use charts to identify resistance and support zones

To identify demand and supply zones using charts, you can use the following methods:

Analyze past high and low prices:

Identify tops and bottoms: Observe the price chart to determine the highest and lowest points over a certain period. These points will likely act as potential support or resistance zones.
Draw a trend line: Connect peaks or troughs to form a trend line. Trend lines can be straight, curved, or broken. Price zones tend to encounter demand and supply as they approach the trendline.

Use popular types of technical indicators:

Use MA to determine resistance and support lines: MA is a curve drawn by averaging prices over a certain period. Popular MA lines include MA 50, MA 100, and MA 200. Price ranges tend to encounter demand and supply lines when approaching MA lines.
Bollinger Bands: Bollinger Bands are two lines drawn parallel to the MA line to form a price range. Price zones tend to encounter support or resistance when they reach the upper or lower Bollinger Bands.
Fibonacci retracement: Fibonacci retracement is a technical analysis tool used to identify potential demand and supply levels. Common Fibonacci retracement levels include 23.6%, 38.2%, 50%, 61.8% and 78.6%.

Combine MACD lines to determine resistance and support lines in Forex

By combining MACD with demand and supply lines, you can know potential points where the price can reverse. Below is a combination you can refer to.

Use the MACD line to determine the crossing point: When the MACD line crosses the signal line from the bottom up. This can be seen as a sign that an uptrend is starting. And the current price range could act as support in the short term. What about the case when the MACD line crosses the signal line from top to bottom? This could be a sign that a downtrend line is starting. And the current price range will act as resistance in the short term.

Use the MACD line to identify divergence: If the divergence is bullish, the price creates a new high but the MACD line does not create a corresponding new high. This could be a signal that the uptrend is about to end. The current price range acts as potential resistance. If the line diverges bearishly then the price creates a new low. This is the type of signal that the downtrend is about to end. The current price range will act as potential support.

See more: Optimize trading with IC Markets Exchange

Combine MACD to determine demand and supply lines

Note when using resistance and support zones

Resistance support is important technical analysis tools that help investors identify potential price points. However, there are a few things to note for safe use:

Support and resistance are not exact price levels: Market prices do not always follow these zones. Because these are only the areas that can affect the price trend. Therefore, investors need to be flexible and adjust their trading strategies accordingly.
Change over time and market fluctuations: Due to the influence of factors such as news, and investor psychology… demand and supply lines may change over time. Therefore, it is necessary to regularly update market information to monitor changes.
Need to combine with many analytical methods: Using this type of line alone may not be enough to make trading decisions. Therefore, investors need to combine many technical analysis methods. For example, analyzing price charts, using technical indicators, etc.
Need to manage risks: Making trades based on this zone always comes with many risks. Therefore, it is necessary to set a reasonable stop loss point for each transaction to limit losses.

Conclude

The above article is all the information about resistance and support that many people are wondering about. These lines play an important role in technical analysis and market evaluation. Hopefully, the above content of Forex Trading will help you use it correctly and profit from applying it. If after consulting the above information, investors have any questions. Please contact us directly now!