Support and resistance are both two of the most widely used terms in the field of technical analysis. These terms are used to analyze technical charts in order to spot a trend and to determine when this trend will most likely turn. The concept is quite simple. On a technical chart, the terms apply both to simple line graphs and to candlestick charts, a trend traces an easily recognizable pattern. This pattern is a descending or descending zigzag line. The ups and downs of the line are called peaks and valleys, and the tops and bottoms of these peaks and valleys are what forex traders call support and resistance levels. The bottom point of a valley is the support level and the top point of a peak is the resistance level. Resistance and support lines are drawn on a technical chart as horizontal lines passing through the points.
The terms support and resistance are anything but arbitrary. The bottom point of a valley is called the support level because this is the level where the buyers of the currency pair start supporting the currency in order to raise it back up. The top point of a peak is called the resistance level because this is the point where the sellers of the currency pair start resisting the ascendancy of its price rate in order to make it go back down.
It’s important to measure the support and resistance levels of the market because these can tell you if the trend is a strong trend or whether the trend is about to reverse and therefore you shouldn’t open a position, or close your existing position. In an uptrend, once the rate hits a resistance level and goes back down, you have to wait to see whether in the next peak the resistance level will be broken in order to establish the trend. If you see the rate stick around the same resistance level for a long time, chances are that the trend is going to reverse. These are extremely potent indicators since they mark the current market sentiment. Since most of the market participants are using the support and resistance indicators, they are likely to pull out of a trade when the market hits the resistance or support levels.
When using candlestick charts, candles will sometimes seem to pass the support and resistance levels, but they will often reverse their movement to below the resistance point before the candle closes. This creates a shadow that passes the resistance point, with the body of the candle remaining inside the resistance level. This means that the market is testing the resistance level, but is unlikely to pass it.
Since the forex market can be capricious, the support and resistance levels are not exact numbers. To make sure that you measure the intended movements of the market, and not its knee jerk reactions, it’s better to plot support and resistance zones drawn as ovals on the technical charts.
One of the interesting things about resistance and support is that one can become the other. If the market passes through a resistance line or a resistance zone, that resistance now becomes support since the next time the market drops it mustn’t pass this support zone if it’s to remain in an uptrend. The opposite is of course true for a down trend. Another practical bit of knowledge is that the more a support or resistance level it tested the stronger it becomes and the harder it will be for the market to surpass it. It’s very useful to watch out for areas of strong support and resistance since these are very powerful indicators of the market’s future behavior and you can safely base your trading activity on these indicators.

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