Support and resistance in forex trading refer to levels where the price of a currency pair has a tendency to stop or reverse. Support refers to a level where the price tends to find buying interest and is less likely to fall below. Resistance refers to a level where the price tends to find selling interest and is less likely to go above. These levels are typically based on historical price action and are used by traders to determine where to enter and exit trades.
Support and resistance levels are often identified using technical analysis techniques such as trend lines, moving averages, and prior price highs and lows. Traders will often watch for the price to reach a support or resistance level and then look for price action signals such as breakouts or bounces to confirm a trade.
When the price of a currency pair reaches a resistance level, traders will often look for the price to reverse and fall back, this is known as a resistance level in forex trading. Conversely, when the price reaches a support level, traders will often look for the price to rebound and rise, this is known as a support level in forex trading.
It's worth noting that support and resistance levels are not always exact and are subject to change based on market conditions. Additionally, it's also worth noting that it's not always a guarantee that the price will react exactly at the support or resistance level, but it is a zone where the price is more likely to change direction.
There are several ways to identify support and resistance levels in forex price charts:
There are several ways to tell if support or resistance levels have been broken:
There are several support and resistance trading strategies in forex that traders can use, including:
It's worth noting that these are just a few examples of support and resistance strategies and different traders may have their own variations or prefer a different approach.
Support can become resistance and resistance can become support in forex when the price of a currency pair breaks through a key level and then subsequently retraces or "reverses" back to that level. When this happens, the key level that was previously a support level (a level where the price found buying interest and was less likely to fall below) now becomes a resistance level (a level where the price found selling interest and is less likely to go above).
On the other hand, when the price breaks through a key level and subsequently falls, the previously resistance level now becomes a support level.
This phenomenon is known as "role reversal" and it is an important concept in technical analysis, as it can provide traders with an additional level of analysis when determining key levels of support and resistance.
There are several reasons why support and resistance can change, including:
It's worth noting that the role reversal may not happen immediately and that traders should keep an eye on the price behavior to confirm the change of role.