The Significance of Support and Resistance in Forex Trading

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Support and resistance is not something new in the world of trading. The concept is used as an indicator to predict various stock market fluctuations. Actually, the concept has a lot to do with the theory of supply and demand. Most charts look like exhibiting random price patterns, but when the theory of support, or of resistance, is applied, very often the price fluctuations on such charts no longer seem random.

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Personally, I began to notice a trend similar to this when I watched stock ticker. Sitting in front of the TV, watching stock ticker, over time it occurred to me that certain price points of Down Jones Industrial Average had a bit of difficulty trying to break through other levels. Moreover, when round numbers were involved and the prices attempted to move, the forex trend became even more obvious.

When market prices fluctuate and continue to rise, generally there occurs a certain point which seems too high to most traders. When such a price point is reached, most buyers refrain from acting. This concept is generally referred to as resistance. Under normal trading circumstances, a price that is regarded as resistance point often receives at least 3 hits! Sometimes, the hits can be quite close to the actual resistance point, but not as high as the point itself.

Support has a similar concept to resistance, but support indicates price points that fail to go down further. That is, when prices continue to decrease, at some level, the prices may start to seem to be quite good deals. It is like a shoe store putting a huge sale! While the sale is going on, generally more buyers come to purchase the goods. The same is true in case of stock market support points. Note that support, as well as resistance, is believed to be strong when there are a huge number of hits on price levels.

While the concept of support, or of resistance, is quite a good indicator to gauze the potential of the market at any given point, not everyone has enough knowledge about it. Stock trading can be a bizarre thing to deal with, at times. That is why sometimes, no solid proof or evidence may exist about support and resistance, and yet people may believe that the points exist. In such a scenario, the market can often reverse direction totally. That is to say that more often than not, rumors seem to have much stronger effect on forex trading than actual announcements that bear significance.

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