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Understanding Support & Resistance Levels

"Support and resistance levels simply show where the supply and demand converge in the market."

Support & Resistance Level in Forex Trading Terms

  As you know, price points within the market are driven by excessive demand where the price of a currency raises or excessive supply where the price of a currency tends to dip down. As the demand for a certain products increases you will see price movement just as you will when there is an overage of supply. Experienced traders know that these support and resistance levels can show them if there are any price discrepancies out there for them to jump in and make a profit.

In order to take advantage of these discrepancies it is important to have a thorough understanding of what exactly support and demand are. In terms of support, this is when the price of a product is at a point where the demand is strong enough to stop the prices from dropping any lower. When you look at the support lines you will get to a point where people that buy tend to buy more and people that sell tend to sell more. The end result is that the price of the product goes up. The theory is that when the price of a product reaches the supporting line the demand will be so high that the price will not go down at all.

In terms of resistance, this is when the opposite of support is the case. The resistance gets to a place where there is enough selling going on to the point where the price cannot go any higher. The amount of competition does not allow it. It is at this point where the sellers are more willing to sell but the buyers are not necessarily more willing to make a purchase. This will help to keep the price steady for a period of time. If the price is dropped even lower than a new resistance level will be established.

These support and resistance levels are not determined through a mathematical formula or equation. Simply put, history will dictate what they are. The support and resistance levels are figured out by researching previous scenarios where the price has suddenly reversed. Whenever you see small movements between the highs and lows this is an indication that everything is perfectly balanced. When the movements begin to grow in size this is an indication that the market is heading in one direction or another. Since there is no perfect way to figure support and resistance levels it is important to pay close attention to the factors that influence them. If you are able to see a pattern developing in front of you the time may be right to get in on a trade. The end result could mean that you will make a profit. If you ignore these signals then you will be leaving money on the table. Since your goal is to make a profit it is a smart idea to pay attention to the support and resistance signals that the market is sending to you.
Candlestick Resources
candlestick charting Chartschool - Detailed technical description with clear graphics to explain key elements required to understand Candlestick Charts.
Forex Support Resistance Levels
suppport resistance levelsInvestopedia - A comprehensive and detailed explanation of forex support and resistance levels with clear graphical illustrations.
Forex Technical Analysis
CMXForex Good general overview of technical analysis with detailed articles on the key analysis components.
Forex Pricing Trends
Investopedia - Trends are when a currency continues in a single pricing direction-details on the different stages of price trends.
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