How to Determine Support and Resistance.

What Is Support?

Support is the price level at which demand is thought to be strong enough to prevent the Forex Market price from declining further. The logic dictates that as the Forex Market price declines towards support and gets cheaper, buyers become more inclined to buy and sellers become less inclined to sell. By the time the Forex Market price reaches the support level, it is believed that demand will overcome supply and prevent the Forex Market price from falling below support. Support levels are usually below the current Forex Market price.

Note: When Support level is broken, then technically it will become Resistance level. And vice versa.

What is Resistance?

Resistance is the price level at which selling is thought to be strong enough to prevent the Forex Market price from rising further. The logic dictates that as the Forex Market price advances towards resistance, sellers become more inclined to sell and buyers become less inclined to buy. By the time the Forex Market price reaches the resistance level, it is believed that supply will overcome demand and prevent the Forex Market price from rising above resistance. Resistance levels are usually above the current Forex Market price.

Note: When Resistance level is broken, then technically it will become Support level. And vice versa.

There are loads of ways in determining support and resistance level. In this section, we’re going to discuss about the two ways. First: Using Forex Market Price chart and past Forex Market Price history. Second: Using Pivot Points.

The first method of determining support and resistance levels is to look at a bar chart and its past price history and then see at what Forex Market price levels the highs, lows and closes seem to be touching the most. This method of determining support and resistance levels works on any bar chart time frame--hourly, daily, weekly or monthly.

Now, let’s see the chart below. This is GBP/USD at 15M of time scale: (I deleted some part of the picture to help you understand the concept)

Let’s start from 27/04/2007 8:00 PM. You know the definition of support and resistance, then we might draw first support level at 1.9922 because market Forex Market price couldn't break below this level.

Now, we have resistance level at 2.0039, where Forex Market price didn’t go up further than that level

And now, take a look at what happened on 30/04/2007 between 4:30AM and 8:15 AM, Forex Market Price move Upward and give us a new resistance level at 1.9969.

And now, take a look at what happened on 30/04/2007 near 12:15 PM, Forex Market price broke below our support level at 1.9922 and our support level was no longer considered to be support level. It became resistance level. (When resistance level is broken, then technically it will become support level. And vice versa, when support level is broken, then technically it will become resistance level. )

Here we got new Support level at 1.9890, because Forex Market price couldn’t break below this level.

Again, take a look at what happened on 30/04/2007 near 12:30 PM, Forex Market Price broke below our resistance level at 1.9922 and our resistance level was no longer considered to be resistance level. It became support level. (When resistance level is broken, then technically it will become support level. And vice versa, when support level is broken, then technically it will become resistance level. )

And so on, we’ll have support and resistance levels like picture below. Again look at horizontal lines 1.9969 and 1.9988, it was resistance line, but Forex Market Price broke above our resistance and it became support level. Flag indicate respects to our support / resistance line (A line confirms its validity when the price respects this line. The more times Forex Market Price touches and bounce back, the stronger it becomes.)

Remember this Rule:

“When resistance level is broken, then technically it will become support level. And vice versa, when support level is broken, then technically it will become resistance level.”