- CFDs & Forex Trading | Regulated Online Trading
- About Us
- Trading
- Platforms
- Resources
- Partners
- Research
Search
×
CHAPTER 4 - LESSON 3
Support and resistance levels are price levels where price has historically had difficulty breaking through.
Support and resistance levels are essential concepts in technical analysis that help traders identify significant price levels where buying or selling pressure may arise. Understanding these levels is crucial for making informed trading decisions and managing risk effectively.
Traders use these support and resistance markers to identify possible entry and exit points for trading, as well as to set their stop loss and take profit levels.
Here are some key things to know about support and resistance levels:
Price levels at which the market has historically had difficulty falling below.
• Traders use these levels to identify potential entry points for long (or buy) trades, as they indicate that the market is likely to bounce back up from that level.
Price levels at which the market has historically had difficulty rising above.
• Traders use these levels to identify potential entry points for short (or sell) trades, as they indicate that the market is likely to move back down from that level.
When a support level is broken and the price falls below it, that level may now act as a resistance level, preventing the price from rising back above it.
Conversely, when a resistance level is breached and the price rises above it, that level may now serve as a support level, preventing the price from falling back below it.
When the price of a currency pair appears to break through a well-established support or resistance level, only to reverse its direction shortly after.
Traders should be cautious when trading around support and resistance levels and should wait for confirmation of a breakout before entering a trade.
Support and resistance levels can be identified using various technical analysis tools, such as trend lines, moving averages, and chart patterns. These levels are formed based on previous price action and are considered important because they represent areas where market participants have shown a significant interest in buying or selling.
It is important to note that support and resistance levels are not exact price points but rather price ranges. Prices can fluctuate around these levels as buyers and sellers interact.
In summary, support and resistance levels are key tools for identifying potential entry and exit points. Be mindful, support and resistance levels are not exact price levels. Instead they’re areas (or zones) where the market has historically had difficulty breaking through. It’s also important to be cautious of possible false breakouts that may occur in these support and resistance zones.
Technical analysts use a variety of tools and techniques to identify support and resistance levels, including trend lines, moving averages, and chart patterns. In the next section, we will explore these essential tools in more detail.
Support and resistance levels in financial markets are calculated using various methods. One common approach is to analyze historical price data and identify significant levels where prices have repeatedly reversed or stalled in the past. Traders often look for areas where buying or selling pressure has been particularly strong, creating support or resistance.
These levels can be determined through technical analysis techniques such as trendlines, moving averages, Fibonacci retracements, and pivot points. Additionally, traders may also consider factors like market psychology, volume, and fundamental analysis to validate or refine these levels.
Ultimately, support and resistance levels are subjective and can vary depending on the trader’s interpretation and time frame.
Apply now to start trading
BAXIA LIMITED
BAXIA GLOBAL LIMITED
Join the community
Risk Warning: Margin trading involves a high level of risk, and may not be suitable for all investors. You should carefully consider your objectives, financial situation, needs and level of experience before entering into any margined transactions with Baxia Markets, and seek independent advice if necessary. Forex and CFDs are highly leveraged products which mean both gains and losses are magnified. You should only trade in these products if you fully understand the risks involved and can afford losses without adversely affecting your lifestyle (including the risk of losing the entirety of your initial investment). You must assess and consider them carefully before making any decision about using our products or services.
Baxia Global Limited is a company registered in Seychelles with registration number: 8426970-1, and is regulated by the Financial Services Authority of Seychelles with License number: SD104.
Baxia Limited is a company registered in The Bahamas with registration number: 177330 B, and is licensed and regulated by The Securities Commission of The Bahamas (SCB), (SIA-F234).
The information on this website is general in nature and doesn’t take into account your personal objectives, financial circumstances, or needs. It is not targeted at the general public of any specific country and is not intended for distribution to residents in any jurisdiction where that distribution would be unlawful or contravene regulatory requirements. Baxia Markets does not offer its services to residents of certain jurisdictions such as USA, Cuba, Sudan/Republic of Sudan, Syria, Iran, Iraq, South Sudan, Venezuela, Libya, Belarus, Afghanistan, Myanmar, Russia, Crimea, Donetsk, Luhansk, Palestine, Yemen, Zimbabwe and North Korea.