When we talk about technical analysis, we cannot avoid to talk about support and resistance because they
are the most used concepts in forex trading.
The terms support and resistance were created back in the early 1900s in the stock market.
Support occurs when traders begin buying supporting a product as it was falling.
Conversely resistance occurs when traders feel prices are getting too high or expensive and they resist
buying at that price.
So support and resistance are price levels or range of prices that a currency pair doesn't often go over
or under.
The first important thing you should notice is that support and resistance are not exact numbers.
They are levels or range of prices.
In this example we can see a support. The price clearly struggles to go under 1.0850.
So we say that 1.0850 is a support level.
If you take a closer look you can see that the price doesn't stop at 1.0850 and
then goes up. It goes to 1.0852 or 1.0849.
So we identify 1.0850 as an area but it doesn't mean that the price goes exactly to 1.0850 and then
it goes up.
Here we have a resistance instead.
The price reaches three times 1.0950 area,
but then it goes back. So you can notice that support and resistance are like a wall.
When the price arrives there it looks that it hits the wall and reverses.
Why does it happen?
Every market price is made by supply and demand levels.
A support is simply an area where the price starts to be appealing and this increases the demand for
that currency, pushing the price up. With the same logic,
a resistance is an area where the prices starts to be seen too high and the demand for that currency decreases,
pushing the price down.