Support and resistance areas or levels are tools that every trader who uses technical analysis, should make use of. It's analysis is a major part of trends since it can be used to determine when a trend will end. Hence both entry and exit areas can be identified with the help of support and resistance.
Support and resistance areas/levels are based on how price has behaved in the past. If the price failed to break through a certain area in the past, it can be expected that it will run into trouble at that same price again. Whether it will hold or reverse price, is something else.
Support and resistance as a tool
The strength of a level or support and resistance depends heavily on how many times the level has been tested in the past and how strong the price reaction was each time. This means that the strength of a level is subject to your interpretation of it. For instance if you see that a price has reacted 5 times of a support in the last 6 months, this looks like a strong level, right? But what is the reaction of the price at that level becomes weaker every time? Suddenly it has a very different outlook altogether.
Trading forex is a numbers game or a game of probability. As often said, there is no such thing as a 100% win rate or a 100% certainty that a trade will play out. Using tools such as support and resistance will only increase your odds. So use support and resistance as an additional tool instead of a leading indicator to take action. So using multiple tools that all indicate a strong reaction at the same level, increases your odds.
Final words
Learning how to determine support and resistance levels takes time. Learning how those levels takes time. Learning how to use it in combination with other tools...you guessed it, takes time. What I'm saying is that if you really want to master something you need to consistently apply it for a decent period of time. Learning how to use it and getting feedback on your work is something that a trading team or a mentor like the ones we have at Urban Forex can help you with.
Watch the video above for the full lesson so you can continue to enhance your skills and be better everyday.
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Editors’ Picks
EUR/USD hits two-day highs near 1.1820
EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.
GBP/USD reclaims 1.3600 and above
GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.
USD/JPY drops back below 157.00, as focus shifts to Japan snap election
USD/JPY is back in the red below 157.00 in the Asian session on Friday. The Japanese Yen recovers ground against the US Dollar amid some profit-taking ahead of Japan's snap general election on Sunday. The preliminary reading of the Michigan Consumer Sentiment Index report for February will be released later on Friday.
Editors’ Picks
EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates Premium
The EUR/USD pair lost additional ground in the first week of February, settling at around 1.1820. The reversal lost momentum after the pair peaked at 1.2082 in January, its highest since mid-2021.
Gold: Volatility persists in commodity space Premium
After losing more than 8% to end the previous week, Gold (XAU/USD) remained under heavy selling pressure on Monday and dropped toward $4,400. Although XAU/USD staged a decisive rebound afterward, it failed to stabilize above $5,000.
GBP/USD: Pound Sterling tests key support ahead of a big week Premium
The Pound Sterling (GBP) changed course against the US Dollar (USD), with GBP/USD giving up nearly 200 pips in a dramatic correction.
Bitcoin: The worst may be behind us
Bitcoin (BTC) price recovers slightly, trading at $65,000 at the time of writing on Friday, after reaching a low of $60,000 during the early Asian trading session. The Crypto King remained under pressure so far this week, posting three consecutive weeks of losses exceeding 30%.
Three scenarios for Japanese Yen ahead of snap election Premium
The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.
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