Forex is an internationally well-recognized business.it is a decentralized worldwide currency market where all the world currency is traded. Forex is the largest, liquid and less volatile market in the world. It is a $5 trillion market a day.
Even you combine all the share market of the world still it cannot even close to it. But does this information makes any difference to you? If you take a closure look at forex trading you might find an exciting investment opportunity.
People use technical and fundamental analysis to increase their profit from the forex market. There are many different criteria to predict the price movement. Among all this Support and resistance are very renowned.
What are Support and Resistance In Forex?
In price analysis, we cannot certainly predict the future but what we try is to improve our ability to forecast correctly. The bottom of the trading which is known as support and this support price label gives the signal about the emerging new market.
The support price is considered the lowest price for currency trade and considered a proper price to be paid for a good profit in the future. On the other hand, a resistance level is the highest point on that particular point seller considers it the maturity to trade the currency for profit.
Can we consider Support and Resistance with Economics?
Some experts compare SR (Support and resistance) with pure Economics like support with demand and resistance with supply. Sometimes it helps to understand the market on term of economics. When we talk about supply and demand actually we try to draw a business model. Supply and demand are factors that affect currency trade profitability.
Forex is a big market which is almost 5 trillion dollars a day. Only a few traders cannot move the market if we count all traders, brokers, investors other than corporations and Banks, it consists of only 3% of all the total Forex market.
The regard of buyers and sellers are in the opposite directions so no legitimate weight should be given to the market as a single entity. The trading range is another important focus of observation, this range is not determined by the Supply and Demand rather it reflects the current condition of the market auction but trading range shifts with times and we find new Support and Resistance levels which gives a new starting point for forecasting.
So it is very important to provide established starting point and elucidate daily fluctuations. On the other hand, any incomparable points might be ignored because we cannot put them in any particular repetitive pattern. So infrequent deviation should be ignored as it is.
How Support and Resistance differentiate successful traders from unsuccessful traders?
So to draw these SR (Support and Resistance) levels flawlessly and skillfully with minimum error is very difficult for successful traders. It takes lots of analyzing and researching so here is the big difference between successful traders and unsuccessful traders.
Winning or losing traders both try to forecast but what separates winners from the losers is the right drawing of support and resistance level for the forex market.
We have to remember that Support and Resistance are zones not simple lines and it is impossible to draw a perfect line. We also cannot depend only on the shadows of candles to draw a line. Not every support and resistance line is important.
If you draw the line on every level, the whole chart will be full of lions and it will be almost impossible for you to determine the proper support and resistance layers.
How to find Rejection using Support and Resistance?
Support is the buyers’ area and resistance is the seller's area. As soon as the market hits the support level then the small green candles appear and it starts to go up.
It shows the entry of the buyers in the market and it is called the rejection. Rejection is a confirmation that buyers have entered the market so the possibility of next candle to go green is higher but if successive red candles appear and you are placing your trade, the chances are higher that you will incur a loss. That is why rejection is so important to understand.
The more the rejection the stronger level it suggests. When we enter in the rejection area we have to identify more rejection points and draw proper lines that include most of the rejections. The more rejection we get the higher is the chance of profitability.
When we draw the rejection levels, very recent rejection is important because the market tends to follow very recently junctions.
How novice mistakes with Support and Resistance?
New investors don't bother to draw support and resistance lines. Some peoples are lazy in nature so learning something new and subjective is very daunting and tedious work for them.
Finding good support and resistance level is a mechanical task that involves knowledge, hard work, experience, and common sense. So novice tries to ignore this point. Another problem with new traders while analysis, they see everything as potential support and resistance.
We call it Support when the decreasing price comes to a stop and from there it starts to rise. Support is viewed as the base from which starts to increase.
On the other hand, Resistance is a price level where growing price stops and creates a roof and changing its direction and starts to falls.
But very often support and resistance breaks and forms a new level of support and resistance. It moves over a period of time and creates a different point of support and resistance.
On the other hand, when price breaks support and resistance it often creates new trend. We find new support and we call it downtrend and on the other hand when price contentiously breaks the resistance we call it up trends.
All these things are very vital tools for traders. It is true that all support and resistance do not give profit but it gives an overall idea about the trend of the market.