What is Support and Resistance in Forex Trading?
Support and resistance are among the two most popular terms in forex trading. Support on a price chart is a price level which signifies more buyers than sellers. In other words, there is more demand than supply in the market. A key feature of support is that it is always below the current price. On the flipside, resistance on a price chart is a price level which signifies more sellers than buyers. That is, there is more supply than demand in the market. As opposed to support, resistance is always above the current price.
When the market is trending, however, things are not as simple…
For example, during a downtrend, the bottoms form the support but supply is actually greater than demand. As a result, the support line is usually breached. The same is true for resistance during an uptrend. The successive tops form resistance, but since demand is greater than supply, resistance is usually breached. The roles get reversed in case of a breach: when a resistance is breached, it becomes support and vice versa.
It’s important to remember that support and resistance are relative to the current price. Anything above the current price is resistance, and anything below the current price is support, whether it’s a trending market or a sideways one.
