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Venturing into Forex for the first time?
Explore the basic concepts of buying and selling.

What are Support and Resistance Levels

Support and resistance levels in the Forex market allow traders to understand the market direction and predict future prices to consider in making trade decisions. They help you identify key price trends when the market has a higher chance of stopping and changing direction. Buying near the support level and selling near the resistance level increases trading opportunities and possibly minimise losses and risks. Let's take a look at what support and resistance levels are:

What are support levels?

The support level in Forex is the price at which the currency pair prices stop falling, change the direction and begin to rise. Hence, there are usually more buyers than sellers at this level. You can identify the support level by drawing a line adjacent to the lowest low prices for the time period you consider in the market. For example, you are trading EUR/USD and tracking its price history to identify the right price level at which you can enter the market. Over the past year, EUR/USD traded between $5 to $15 per one unit. In the second month, the currency pair prices increased to $15, but the month after that, it fell to $5. In the 7th month of trading, it again went up to $15 per unit but fell to $9 in the 9th month. The 11th month saw an increase once again when the currency pair traded at $15 before falling to $12 in the next 31 days and finally ended up climbing back to $15 again. After analysing the market price trend for EUR/USD in the last year, you identify the support price at $5. This means that you can choose to place a buy order at $5 this year for the same currency pair to trade it at the lower end of the entire range. Placing the buy order at the support level enables you to maximise your profits through an increase in pricing.

What are resistance levels?

The resistance level in Forex is the price at which the currency pair prices stop rising, change the direction and begin to fall. Hence, at this level, there are more sellers of the currency pair compared to the buyers. You can identify the resistance level in a Forex market by drawing a line along with the highest high prices for the time period you consider in the market. For example, let's consider the same example that we talked about during the support price identification, with the EUR/USD currency pair trading between $5 and $15. The resistance price level is identified at $15. Hence, you can place a sell order at this price so that whenever the currency pair price reaches this level, your order is executed, and profits are maximised.

What is the difference between support and resistance levels?

The big difference between the support and the resistance levels is that support is the price level below which a currency pair does not fall, and resistance is the price level at which the currency pair does not usually grow anymore. We can consider the support price level as the price flooring and the resistance price level as the price ceiling.

Top support and resistance level trading strategies

1. Breakout or pullback strategy

It often happens that after a long period of market uncertainty, the currency pair prices break out and start trending. Such breakouts can be identified right above the resistance level or below the support level. Trading with the breakout strategy allows traders to capitalise on the increasing market momentum in the particular direction that has the potential to start a strong market trend.

Support Resistance graphic

2. Range trading strategy

A trader can utilise the range trading strategy by trading between the support and resistance price level. Once traders identify the support and resistance level, they get a specific range between which they can trade with maximum profits and minimum losses. As soon as the price goes beyond the support price, traders long a position, and as the prices bounce off from the resistance price, they short a position.

Support Resistance graphic

3. Trendline trading strategy

The trendline trading strategy is one of the most popular support and resistance trading strategies as it utilises the trendlines to place profitable trades in the Forex market. The trendlines are considered as the support or resistance levels by connecting two or more downtrend highs or uptrend lows. Whenever there is a strong market trend, the prices move beyond the trendline and move in the trend’s direction. This enables traders to place trades in the trend’s direction to maximise profits.

Support Resistance graphic

4. Moving average trading strategy

A trader can consider moving averages from any period of time that suits their trading plan and goals. For example, if you choose the 55 periods moving average, it will trend above the average market price as the resistance line. The market would then reverse, and the 55-period moving average will become the support level. These trendlines can be used to make market decisions, especially during continued trends that are susceptible to break.

Support Resistance graphic

Make the most of support and resistance levels for successful trades

Support and resistance levels are key indicators to identify profitable entry and exit points in the Forex market. With Blueberry Markets, you can study several charts and utilise the support and resistance trading strategies to place successful Forex trades in the market.

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Frequently Asked Questions

How to find support and resistance levels?

You can place the Fibonacci retracement in the market grid from the low price to high price in an uptrend and from high price to low price in a downtrend.

What is the best Forex support and resistance indicator?

The 4/8 line is considered the best support and resistance indicator as it provides the most amount of s support and resistance. It acts as strong support when prices go beyond it and strong resistance when prices move below it.

How do you determine powerful support resistance?

The most powerful support and resistance are determined whenever there is a market trend reversal. Whenever a downtrend ends and an uptrend starts, it is a powerful support level, and it is a powerful resistance level when an uptrend ends and the downtrend starts.

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