Support and resistance is one of the most widely used concepts in forex trading. Strangely enough, everyone seems to have their own idea on how you should measure forex support and resistance. Look at the diagram above.
As you can see, this zigzag pattern is making its way up bull market. When the forex market moves up and then pulls back, the highest point reached before it pulled back is now resistance. As the market continues up again, the lowest point reached before it started back is now support.
In this way, resistance and support are continually formed as the forex market oscillates over time. The reverse is true for the downtrend. One thing to remember is that support and resistance levels are not exact numbers. Often times you will see a support or resistance level that appears broken, but soon after find out that the market was just testing it. There is no definite answer to this question. Some argue that a support or resistance level is broken if the market can actually close past that level.
However, you will find that this is not always the case. In this case, the price had closed below the 1. Looking at the chart now, you can visually see and come to the conclusion that the support was not actually broken; it is still very much intact and now even stronger. One way to help you find these zones is to plot support and resistance on a line chart rather than a candlestick chart. The reason is that line charts only show you the closing price while candlesticks add the extreme highs and lows to the picture.
You only want to plot its intentional movements. Looking at the line chart, you want to plot your support and resistance lines around areas where you can see the price forming several peaks or valleys. Partner Center Find a Broker. Next Lesson Trend Lines. There are no traffic jams along the extra mile.More...