Support and Resistance in the Forex Market
Support and Resistance forms the foundation for any solid forex trading plan. Once you have a firm grasp of support and resistance in forex price charts, you’ll be head and shoulders above the average forex beginner (but will still be at the feet of the masters for now…)
Remember that the trading Forex market is a financial game, like tug-of-war, between the bulls and the bears. The bulls try to pull prices up and up, while the bears try to bring them down.
The market only moves in three directions: upward, sideways, or downward.
Highs
Highs are candlestick formations where the candle’s high point (usually the top of its upper wick, unless the candle does not have an upper wick in which case the high point would be the open or close) is higher than the previous two and subsequent two candles.
Notice how price highs concern the nieghboring 4 candles
Levels of Resistance
Not all highs in the forex are levels of resistance, but all levels of resistance are highs.
In order to create a level of resistance, the market must be achieving higher highs. The term resistance comes from the idea that at that price level, traders are resisting buying at the higher prices.
At the resistance level the bears sell enough and the bulls resist buying enough that an uptrend may be interrupted and reversed.
To identify resistance levels, start from the price the market is currently at (at the right of the chart) and work backwards (moving right to left) pinpointing higher highs. Finding levels of resistance is like building a staircase that rises backwards, where each stair is a new level of resistance.
Lows
Lows are the opposite of highs. They are candlestick formations where the candle’s low point (usually the bottom of its lower wick, unless the candle does not have a lower wick in which case the low point would be the open or close) is lower than the two previous and two subsequent candles.
Price lows will help you determine levels of support and resistance
Levels of Support
As with highs, not all lows in the forex are levels of support, but all levels of support are lows. In order to qualify as a level of support, the low must be lower than the previous low.
Support is a low and a price level where the bulls start buying enough to interrupt and reverse a downtrend.
In order to identify support levels, start from the price the market is currently at (at the right of the chart) and work backwards (moving right to left) pinpointing lower lows. These lower lows are levels of support. Draw a line at these lows to the left until you hit the next candle, then look for the next lower low (the next level of support).
When the market achieves lower lows (creates a new level of support) it is said to be breaking support.
If you are a bull then you want to see the market making higher highs, taking out previous levels of resistance. Set your stop loss order at the last low or the last level of support. If you are a bear then you want to see the market making lower lows, taking out previous levels of support.
In this case, set your stop loss order at the last high or the last level of resistance.
Can you see the support and resistanc levels on this chart?
Understanding the basics of support and resistance forms a large part of the foundation needed to become a successful forex trader. In my next blog post, I’ll give you some trading rules for interpreting forex levels of support and resistance.
Related posts:
Tags: breaking support, higher highs, lows, resistance, support, support levels Posted in
Rapid Forex on 
Kulvadee on 
dan on 
Chris E on 
mario on
March 4th, 2010 at 7:32 pm
Nice explanation of lows & highs. This is a little basic, but I understand why you here. This will come in handy when anyone asks:
“What does higher highs and higher lows in a trend mean?”
I suppose you’ll be talking about that soon?
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Rapid Forex
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March 4th, 2010 at 8:32 pm
Keep reading my friend, it’s all coming…
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March 7th, 2010 at 6:46 am
The chart is kinda hard to see. I think I can see what you mean by support and resistance lines, but it would be cool to have a bigger picture.
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Rapid Forex
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March 8th, 2010 at 2:48 am
You’re right, I need to zoom in more and/or provide a clickable bigger picture. Thanks for pointing this out Preston.
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April 17th, 2010 at 9:55 am
Hi Brian, I agree with Preston that the charts are quite small and not so clear, is there a possibility of enlarging it when we click to look at the charts on its own? Tks. great explanation.
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April 17th, 2010 at 12:34 pm
Good basic lesson. One thing I would point out is that once a new Support or Resistance is identified, the market does not forget the previous levels – should price return to sameareas, the same areas will privide resistance/support. Hence I would modify your recommendation about stop-loss positioning slightly: instead of using the previous Support/Resistance (S/R) as the stop-loss: move the stop-loss a few pips below or above the previous S/R (i.e if going long, place the S/L slightly below the previous support. This way price will have opportunity to “bounce” off the support before hitting your stop-loss.
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Rapid Forex
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April 17th, 2010 at 1:38 pm
Karl, that’s a good tip. I wanted to keep it simple for a beginning lesson, but I will elaborate on this in future posts.
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April 21st, 2010 at 5:20 am
Good lesson Brian keep it up.
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April 25th, 2010 at 7:01 pm
Hi brian,nice piece on support and resistance,but will u later talk about when support turns to resistance and when resistance turns to support,i want a better explanation on it,and i know u will be good at that,
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Rapid Forex
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April 25th, 2010 at 7:02 pm
@Badmus – yes, I’ll be talking about this in the future.
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April 28th, 2010 at 5:19 pm
Thank You. I am truly a newbie and your explanation is absolutely good for me.
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May 1st, 2010 at 10:34 pm
Hi,
I didn’t understand why the seconde “low” (from the left) isn’t level of support, and the S1 is level of support?
thanks,
Eli
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May 26th, 2010 at 6:22 pm
Nice explanation. I didn’t understand why high between r-1 and r-2 was not called r-2.
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July 12th, 2010 at 2:18 am
Hi Brian,
Thanks for e-mailing me the Ecourse. I think I am missing lessons no.2 and 3. I got lessons 1 and 4. Maybe you can put the lesson numbers in the e-mail subject. So all the posts would look more unified.
Thank you,
Waldemar
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Rapid Forex
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July 15th, 2010 at 12:49 pm
@Waldermar – I’ve changed the ecourse since it was originally posted. The old links have lesson1, lesson2, etc… in the link structure, but I deviated away from that because it’s laborious to go and change every link. So please ignore the lesson #’s and just read the email. You haven’t missed anything. I’ll go through and remove lesson #1, 2, etc… from the emails.
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August 22nd, 2010 at 9:51 am
Hi Brian,
Thank you for another wonderful lesson. i agree with you Brian.
Thanks
Devadas
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