Support and resistance levels are one of the most important tools that the trader uses in technical analysis, and they are very popular among most traders. .
But what is the true meaning of support and resistance levels? And how do we define those points? It is one of the important questions on the mind of the trader, which we will explain later:
What are the points of support and resistance?
It is the minimum level of a currency's price movement at which it settles without declining and rebounds from it.
This means that when the price of a currency declines and continues to decline until it reaches a certain point, it stabilizes without retreating, then rebounds to rise again, and this is repeated several times. You know that point at which the currency settles without decreasing by the support level, as it prevents it from retreating further.
Also, when the currency reaches the levels of support, you have a clear indication of the improvement in demand for the purchase of this currency at this level.
But this does not necessarily mean that the price that the currency reached at the support level does not break that level, but rather it may fall from it, so the support points are considered as an obstacle that prevents a further decline, and the more times the currency price reaches the support level and does not decrease About him the stronger the point of support.
It is the highest level of a currency's price movement at which it settles below the rise and bounces back down from it.
This means that when the price of a currency rises and continues to rise until it reaches a certain price that cannot be skipped, it begins to decline and then goes back up again until it reaches the same oil and returns to decline, and this is repeated several times, that point is called resistance points, and the more times it increases Where it reaches that oil, the stronger the resistance levels.
How to identify support and resistance levels
The trader can easily identify points of support and resistance just by looking at the chart, as these levels appear on the chart.
Factors that affect the strength of support and resistance levels
There are many factors that affect the strength of these levels, the most important of which are:
- The duration of the currency pairs' movement, the longer the duration, the more clear the support and resistance levels and the more directional movement for them.
- Trading volume also affects the strength of support and resistance levels. When trading volume increases, support and resistance points increase.
- The range of movement of the currency pair, the greater the movement of the pair, the stronger the support and resistance levels, as this is also called the support and resistance limits, and when the price reaches these points, it is likely that it will not cross them and reverse, and there is a possibility to break those levels and start forming other levels.
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Professional technical and economic analyst in global financial markets since 2004. He holds an MBA from the American University in Cairo. He works as an economic writer and technical analyst for many international financial companies. He writes daily economic and technical analyzes for many Arabic and English websites specialized in the field of stock exchanges and financial markets.