Support and Resistance in Forex

June 2, 2009 – Support and Resistance in Forex

As you can see in the last picture, we can use support and resistance to decide on various stop levels. I use an indicator (called, of all things, support and resistance !) which calculates and draws everything automatically. I uploaded it to the DOWNLOAD link, so feel free to use it, if you’d like.

But there’s one thing that I’d need to clear up. The words Support and Resistance, I believe, come from the world of stock trading, where one hopes a stock will go up rather than down, in a “normal” market. Shorting in the stock market is very complicated and not used a lot. So the Support line (bottom) is called this because it supports the price, which is going up. And then once it reaches a certain level, it hits some resistance (top) to continuing its ascension.

However, in forex, it isn’t the same thing at all, as we don’t really care if a pair is going up or down, as long as we’re in the right direction. So in a sense, you could call the blue and red lines both resistances (or supports, your choice) but they’re really equal in Forex, they’re zones or areas where price tends to stall and revert and if the zone is broken, then usually we’ll see strong movement in the direction of the resistance break.