If you’re going to do any type of Forex trading system in the financial markets (Or any other system for that matter), you are going to have to more than likely discover a very basic principle, a principle known as support and resistance. Without using support and resistance, it’s very difficult to identify areas where buyers or sellers may be interested in the market, and as a result it’s likely that you will struggle.
Even traders to use fundamental analysis will have the most rudimentary idea of where support or resistance would be, even though they will tell you that they are not technical traders. On one hand, support and resistance is one of the easiest things to identify, but on the other hand some people seem to struggle. A lot of it comes down to overdoing it.
The idea of support is where the market is supported by the buying public. In other words, if there is an area on the chart where the market continues to bounce after falling towards, it said to be supportive. There is quite often very specific areas where the buyers reenter the market again and again. For example, perhaps you are trying to buy Coca-Cola stock, and you notice that somewhere near the $50 level we continue to bounce. That is a very supportive level.
On the other hand, there is such thing as resistance. It is exactly the opposite of support. In other words, it’s an area where the market falls from every time we get there. In other words, sellers are resisting the market going higher. Maybe with the same Coca-Cola stock, you notice that the market is struggling to get above the $62 level. If we try that area again and again and continue to fall from there, it is known as resistance.
No matter how you choose to trade, you should be fully aware of support and resistance as it is the most basic of tools. On top of that, I would highly urge you to pay attention to the higher time frame support and resistance levels and not worrying too much about the short-term ones, as they simply are noise. You can trade quite successfully using just long-term support and resistance levels and a little bit of common sense. In the video below, and give you a few pointers and examples as to how to use this very powerful tool.