What is Support and Resistance?

Support and resistance levels are crucial for traders who use technical analysis. These levels show where the focus of supply and demand come together, which helps traders to determine the psychology of the market.

One key concept of technical analysis is that when a support or resistance level is breached, its role changes. If the price rises above a resistance level, that price will often become a support level. In these instances, supply and demand has shifted, resulting in the broken level reversing its role.

Plotting where support and resistance lies is key for traders to establish when buying and selling. These levels can often lie in a zone rather than exact numbers. When price moves higher and pulls back, the highest price reached before it pulled back is resistance. When price continues higher again, the lowest point reached before it moved back is now support.

In basic terms, a trader will buy when the price falls near towards support. That support zone has held prices up in the past, and the expectation is that the market will bounce from there. A trader will sell when the price rises towards resistance.

Two things to note. Firstly, the more often a market tests a level of support or resistance without breaching it, the stronger that zone of support or resistance becomes.

Secondly, when a support or resistance zone does break, the strength of the follow-through move depends on how strong the breached support or resistance had been.

Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.

Risk Warning: There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose, it is possible that you may lose more than your initial investment. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved seem unclear to you, please seek independent financial advice.


Want to practice some trading?

Read more

Ready to trade with real money?

Open account