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Forex: Support and Resistance Defined

Forex Trading and The Forex Market is widely popular globally for being one of the best financial markets to trade-in. In short, forex trading is the act of buying and selling currency pairs at their exchange rate. For example, you’re trading USD/EURO. In this case, USD is the base currency, and EURO is the quoted currency. You always trade for profit. The Forex market, on the other hand, is known to be one of the most liquid and largest financial markets in the world. Millions of participants trade in forex markets for profit, and most of them are less volatile than the others because of how liquid the market is. The higher the liquidity means, the bigger the market hence less volatility; this is why many consider forex trading and the forex market less risky than other types of investing.

Forex might sound easy on paper, but without the proper knowledge of the “behind the scenes” of forex trading, then you’re mistaken. Many traders lost their entire capital on the forex market for reasons that they’re not aware of what they should’ve known before trading or being reckless. So, how about let’s start talking about Support and Resistance in Forex. What are Support and Resistance? This article will discuss what is support and resistance in Forex Trading.

What are Support and Resistance in Forex?

In Forex, a price at which a downtrend is expected to pause due to a concentration of buyers or demand is known as support. A low volume of transactions generates support levels due to a price being too low and the trend line having little effect on the trading volume. Since there is less selling than buying activity near the support level, those holding onto shares will usually be more inclined to sell at higher prices than at lower levels. Meanwhile, resistance is a level of price that impedes the further increase in the price of a currency pair, breaking above which usually reflects stronger demand from buyers, and opening the way for further growth of the pair. In other words, resistance is a powerful zone where sellers are ready to counterattack with more potential than usual.

forex trading meaning

Many forex traders prefer to hit a sweet spot as being in the “zone.” And then there was the chance to choose between support and resistance. Forex traders might use this opportunity as an entry or exit point. Still, suppose a currency pair reaches a level of support or resistance. In that case, it can bounce back to a position where it’s safe to enter or exit, or it can continue violating the currency pair price until it reaches the next level of support or resistance.

Trendlines

The Trendline Forex indicator is highly configurable and offers the trader a versatile tool that forex traders can use in various ways. It’s easy to set up, and once configured correctly, an indicator does not need to be adjusted again. This particular setup works by drawing two lines off the pivot highs (or pivot lows), and these lines form a channel within which price will swing back and forth. Trendlines were first used in technical analysis to help identify and define a price trend, but chartists quickly realized that trendlines do a lot more than illustrate trends. Those lines can signal where a trend’s about to end or begin, and they can even tell you what the transaction price will be.

Key Takeaway

In forex trading, many forex traders base on the support and resistance zones and the trendline of a currency pair. Many use this as a basis whether it’s the best time to enter or exit. This is why understanding how to read the chart is important for your success in forex trading.