It is important to be clear and fully understand the concept of support and resistance (S&R) if you want to interpret the movement of a Forex chart correctly. So, what exactly is support and resistance? Why do support & resistance happen? It is basically an economic question that will be beyond the scope of my post today, and also it is not necessary for us to underatnd it.
What we need to do is to understand what exactly is support & resistance.
Resistance are levels that exists above the current price. It act as a barrier to the price preventing it from increasing above that level.
Support are levels that exists below the current price. It act as a barrier to the price and preventing it from falling below that level.
Try to imagine having a bouncing with unlimited energy in a room. When the ball bounce up and hits the celing, it will rebounce and head towards the floor. When it hits the floor, it will rebounce and head towards the celing. You can simply take the ball as the price, the celing as the resistance and lastly the floor as the support. It takes great effort to break strong S&R like the celing and the floor.
So to trade in Forex, it is very important to know where all the S&R lines are for the currency pair that you are looking. Why? The reason is simple. The lines are the place where price can either breakout or price will rebounce S&R. It might present you a new trade opportunity. So by knowing where the S&R lines are in advance, we can try to take profits at these lines.
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