If you’ve been in the forex trading business for a while, you have probably developed your own trading strategies by now. All traders have their own ways of analyzing the market – they use these strategies when trying to predict how the prices will behave. One of the most important types of market analysis is definitely technical analysis, and its most used elements are the concepts of support and resistance. Keep reading our Forex Resistance Level article to find out what traders can get from support and resistance levels, with a special emphasis on the latter. Stay with us and get informed!
Forex Resistance Level | Definitions
Let’s first define support and resistance levels. As we have stated in the previous paragraph, support and resistance are analytical concepts used by most forex traders. They can be visually presented by a zigzag pattern. When the pattern is making its way up and after that pulls back, the highest point that was reached before pulling back is called the forex resistance level. The support level is a direct counterpart to the forex resistance level. It represents the lowest point a pattern reaches before the market continues to rise. In other words, forex resistance level is the level which very difficult for a price to breach when the said price is moving upwards. This is usually because at that level the supply becomes too big for the market to absorb. We’ll talk more about that in the next paragraph, so don’t go away.
Forex Resistance Level | Resistance Level
A price’s resistance level usually indicates that there is a big liquidity of a currency at a particular price. The price will remain at this level until the market absorbs a large sell order. Forex resistance level can also be created as a consequence of many market participants’ reactions to the sell trigger points. Resistance is breached when the market absorbs the big supply that’s concentrated at the resistance level. When this happens, forex resistance level usually turns into support areas. Most traders then react to this price resistance by taking long positions. After that, when supply and demand stabilize, the price will go back to its original resistance level. However, you have to be aware of the fact that, in most cases, you will not be 100% sure that the level is broken. That’s why you should think of these levels more as zones than numbers. We suggest you consider some Risk Management Tools to help you along the way.
Forex Resistance Level | Conclusion
Forex resistance level analysis is one of the most important parts of technical analysis in the foreign exchange business. This level tells us when an asset’s price will begin to struggle to keep rising. This is due to a high number of sell orders the market has to absorb, which results in the price’s decline. The reason why this is so important is that it gives you a way to predict trend reversals if you don’t think the asset in question has enough strength to break the resistance level. But this is not the only useful thing you can learn from our website – keep browsing and you will find much more.