The most important setback with most of the technical indicators is that they are always lagging behind the markets. Lag means some of the price action has already taken place before the movement is reflected by these technical indicators. If you want to understand Forex Trading than you should learn the concept of support and resistance. Get this Sublime Forex Champions MT4 Multi Indicator Scanner FREE that can tell the market direction of any currency pair on 8 different timeframes. Download this 1 Minute Forex Trading System FREE. Learn this Fibonacci Retracement method FREE that pulls 500+ pips per trade!
Support is the price level that a currency pair touches but has trouble breaking through to the downside. Support is also called the floor of the currency pair price movement.
Resistance is the price level that a currency pair has trouble breaking through to the upside. Resistance level is also known as the ceiling of the currency pair price movement.
A simple explanation is that majority of the forex traders think the support level as the best price available to them and considers it an excellent opportunity to buy once price reaches the support level.
You will have an edge and an advantage in your Currency Trading if you are capable of accurately identifying and predicting the support and resistance levels in the markets. As more and more traders use technical analysis in trading and calculate the support and resistance levels, the more these levels become self fulfilling prophesies.
One important characteristic of support and resistance levels is that the price level is reached a number of times and is never breached, There is no breakout of the price from these levels . Support and resistance levels are horizontal for a ranging markets and they can be sloping up or down for a trending market.
Most of them have done their calculations as to how far the price level will drop down before they can go long. Past price action tells them that the price offered at the support level is the best price under the present market conditions. So when it reaches that level, most of them start buying and go long.
This oscillating price action keeps on repeating until and unless there is a fundamental shift in the markets and new levels are established.
