A concept of support and resistance points is undeniably the most discussed in the technical analysis method. The theory of resebut no doubt becomes the basic subject that must be known to beginner traders while studying technical analysis. In this article I will try to explain the basic things to know about things related to the concept of support and resistance points.
For a trader who has long been involved in the trading world must have found a condition where the price is difficult to move through certain levels. For example, during a period of EUR / USD it is very difficult to move up to break the 1.3556 level. As you can see on the chart below. The 1.3556 level can be called a resistance point that you can imagine as a “roof” to prevent price moving up past it.
While on the other side we also have a price level called a support point. This support point can be imagined as a floor that prevents the price to go down through it. As you can see in the picture below, support point can also be an option to take a chance in open BUY position.
In the example above, you have seen a level of support and resistance points that can constantly prevent the price to move higher or lower. However, in the long term, the price will certainly move up or down in accordance with the trend that causes the support and resistance levels to be changing over time. This is why understanding of a trend and trendline becomes very important in learning the point of support and resistance. For more details, please see the picture below.
When the price trend strengthens, the support and resistance points fall off the high (peak) and low (base) which is increasing or decreasing. In the example chart above, the resistance level is formed from the declining price, while the support is marked by the low price which is also moving downwards.
Another characteristic of the support or resistance point is that a price will find it difficult to move through a price level that has a round number. Example: level 1500,1600 and the like. The round number is believed to be a strong level where major banks are also putting their targets at that level.
In the context of technical analysis, there are many indicators that have been developed to observe a level of price resistance. Fibonacci retracement is one of the favorite indicators used by traders. The reason, Fibonacci retracement is an indicator that can calculate several levels of support and resistance variations. In the picture below, we can see where there are horizontal lines that become price resistance level.
From the description above, it can be drawn a conclusion that the point of support and resistance is able to help you improve the success of trading strategy by using it as a support pedestal. From the point of support and resistance we get the picture, when the price will bounce or will reverse direction. This becomes an important thing when you decide to open a position or find a stop loss level and take profit potential as a close position step.