A support level can be thought of as a price floor where the price of the particular currency pair that you are trading will touch this level as it moves down but then rebound back up. A resistance level can be thought of as a price ceiling where the price of your currency pair will approach this level on its movement up but then switch directions and move back down. The more times that the market approaches a particular support or resistance level and then retraces back, the stronger and more relevant that level becomes, especially if it represents a big figure that is a round number with two zeros.
The way to make money in forex by using support and resistance levels is to begin by identifying which levels are relevant for your currency pair, and you can do this by examining a set of price charts over different time frames to see which points the market touches and then retraces in the other direction. What you will want to do once you have identified a relevant trading range of two strong support and resistance levels is to buy when the market reaches the support level and continues moving up again. For your buy order you will want to place a stop loss order 10-15 pips below this support level and a take-profit order 10-15 pips below the resistance level. For your sell order you will want to enter the market once the price has reached near the resistance level and begun to move down, and your stop loss should be 10-15 pips above the resistance level with your take-profit order 10-15 pips above the support level in the trading range.
On literally ever single price chart that you will look at in your investing career, you will find support and resistance lines. This article will begin by covering the basic definitions of what support and resistance levels are, how to identify them, and why so many forex traders use them as an accurate trading tool to capture more pips and minimize any losses. One of the great things about support and resistance levels is that they serve as a powerful trading indicator on their own, but when combined with other buy or sell indicators they make it easy to place trades with a small probability of failing.
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