eToro – Forex Trading Forum

[djsheckie]

Hi all! Still trying to study hard so I can trade smarter not harder. :) At any rate I’ve learned about a few different things which I think others might find useful so I’ve decided to put together a little overview of important concepts as I come across them. This initial post will deal with support and resistance.

You’ve probably come across the terms support and resistance already as they’re fairly common terms in FOREX. So what do they mean exactly, and why are they important?

Resistance is the highest point the currency reaches before starting another downward trend whereas support is the lowest point the reached before starting another upward trend. In plain English resistance are going to be the high points on the chart and support are the low data points on the chart. Obviously as the market moves the support and resistance points will change as time goes on.

This might sound a bit technical but hopefully the following chart will help explain. After all a picture is worth a thousand words, right?

So, on to the more pressing question - why should you care? Knowing where the support and resistance points lie helps you determine whether the market is in an upward trend or a downward trend which gives you a better understanding of what’s happening in the market.

[djsheckie]

Unfortunately plotting resistance and support isn’t always so easy. Sometimes there are areas where it seems the resistance has been broken and the trend has therefore changed - i.e. - a new high is reached and it looks like a new resistance level has been set. However, it may be that the resistance level is only being tested and may seem to be broken only to dip back down again.

There's somewhat of a disagreement about what's considered breaking the reistance level when it's so close. Although, there are those who argue that it has been broken if the market closes past that resistance level.

Plotting resistance level on a candlestick chart can be trickier so if possible try using a more basic line chart to cut out some of the confusion. The line charts are simpler in that they just show closing numbers with out representing all the other highs and lows in between. Also, to avoid being taken in by a false break in resistance think of support and resistance as more of a general area than a hard and fast number and this should help.

[djsheckie]

Once you can identify areas of support and resistance finding the trend is relatively easy. Actually, with eToro it's a no-brainer since you can plot the trend lines at the click of a button which is super handy, but it's always nice to know how to do it yourself so you have a better handle on the basics of FOREX.

So how do we find the trends?

Basically, in an uptrend the trend line can be drawn along the bottom of the clearly identifiable support areas, also know as valleys. Whereas in a downtrend the line will run above the areas of resistance, also known as peaks. If the market is relatively stable you'll find a sideways trend which allows you to visually see the lack of volatility.

Easy peasy, right?

[xmenlawn]

Very easy peasy ^_*; but i have one question about this, how many support line do you draw until you know its a upward trend? From your picture its 3 support and
Once you know its an upward trend isnt abit too late to enter since its already up? Like you have to wait until you know or else you are just jumping into risk if you dont know the trend.

Kind regards,

Chan