Forex Support – Forex Academy

He who lives by the crystal ball will eat shattered glass, said Ray Dalio. The ways to analyze the market are increasing by the day, all for the purpose of giving traders the foundation for trading. The more knowledge one has, the less likely he/she is going to rely on sentiment or intuition.

Support and resistance have emerged as two of the most discussed aspects of technical analysis. The two terms refer to the price levels that traders use in the chart to determine certain patterns. These levels are important because they can stop an asset from getting pushed in a certain direction.

Support and Resistance Differences

Although support and resistance may come in many forms, they can be defined as follows:

Support is a price that has not come down for a while. Such a pause in price movement is triggered by a higher demand or buying interest. Support always occurs where we expect to see a downtrend and where buyers tend to enter the market.

Resistance is an indication that an uptrend may pause for a while owing to a concentration of supply. Resistance also signifies that certain asset experiences difficulty breaking through, which may result in a potential fall. The greater the number of times the index or stock has tried to break through the resistance, the stronger the resistance in question is.

Both support and resistance are confirmations of supply and demand levels that can be identified with the use of trendlines and moving averages.

Supply and Demand vs. Support and Resistance

All support and resistance levels result from supply and demand levels. When the price of an asset drops, demand rises, forming the support line as a result. Conversely, prices increase causing selling interest, which leads to the formation of resistance zones.

Price Movement

Whenever a price reaches support or resistance, it can either bounce back in the opposite direction or break through the price level until it reaches the next support/resistance level. These support and resistance zones can thus serve as potential entry or exit points.

Whether the price bounces off or breaks through the support or resistance lines, traders can always get an idea of the direction towards which the price is heading and have their theory confirmed or refuted promptly.

Should the price move in an unfavorable direction, traders can close the position at a small loss. However, if the price moves to the trader’s benefit, the entire trade can turn out to be quite rewarding. This idea gives birth to many reversal strategies.

Concerns

Now that we understand what happens when an asset tests the support line, we need to address possible problems in trades that use support and resistance as a tool to identify price action.

First of all, support and resistance levels are one of the key concepts used by technical analysts. As their popularity is undeniable, so is the fact that they can create hotspots in the chart. If your support line is easily created by most market participants, you will surely see the heightened concentration in that area of the chart. And, the more traders rely on the use of support and resistance, the greater the chance that the big banks will step in and manipulate the price.

Secondly, many traders like to use support (and resistance) lines for predicting where the price is going to go. Unfortunately, we cannot know if there will be any reversals or breakthroughs in advance. What we can quite often attract, however, is an uncontrollable and unexpected change in price triggered by an elevated concentration of traders in a specific price level.

Thirdly, there is a rise in the number of social media accounts that claim they know where the right support lines are in the chart. These posts and offers are used as fishing hooks intended to lure people to trade based on the information provided for which the authors receive payment. Do not trust all products you find online just because someone claims to know exactly what you want to hear.

Next, support and resistance do not function equally well in different trading markets. These terms may serve stock or crypto traders much better than currency traders for example. Some brokers’ websites contain information on where support and resistance lines can be found in the chart, but do not forget that these companies earn money when the price moves in the exact opposite direction from where you would want it.

Also, if you use support lines in combination with another similar tool, you may increase your susceptibility to external influence (i.e. large banking institutions). The more you rely on the tools the majority of traders prefer, the greater the chance of your trade being whipsawed.

And, if we see several support lines in the chart, which one are we supposed to use? How do I know that I have chosen the right one?

Last, if there are variations in the degree of my success, how can I know that support (and resistance) is a reliable tool for sure?

Conclusion

When you test how support and resistance works, make sure to take detailed notes of all of your trades, including the total wins and losses. Sometimes, we get a feeling that something is a great tool just because it once brought us some good results.

Traders need to feel certain that the tools they use in trading are going to give them consistent results – both in terms of wins and losses. If you get one good win and then take five consecutive losses, your account will suffer. You may have a problem even with fewer losses if they end up cutting your entire account in half. No win can compensate for such a loss percentage, and no tool should be trusted if it leaves room for such scenarios.

What is more, the trading community seems to love support and resistance lines, but the fact that there are very few critical observations of this tool should raise questions.

If you are a beginner, you should definitely pay attention to the testing phase and record every step diligently. You must know if your support and resistance lines are going to serve you or make your account suffer.

However, if you find your support (or resistance) lines to provide you with continuous success, there is no reason for you to question their worth any further. If you have good results, you need to keep that skill consistent. Having a hunch could be a skill if you can do it time after time, the lingering question remains: is that talent going to vanish as you change psychologically and physically?

Trading can be tough, really tough, it can also be stressful and lonely. Spending hours in front of the computer, not really talking to anyone else can be detrimental to both your mental and physical health. It can also be lonely, but it doesn’t need to be. When we look at most successful people, they often have a team of others around them, not only is this for their professional careers, but it is also for their well being, having people around can keep you sane and can also help you stay motivated to do whatever it is that you are doing, in this case, trading.

It is well known that having a good network of support around you is beneficial for things like reducing stress and anxiety, which will give you better coping skills, and an overall sense of well-being. So when trading, we need to ensure that we have these support groups around us, they will make learning and trading a lot more bearable and will keep you going and motivated for a lot longer than you would be doing it by yourself.

Friends and Family

When you move into a new industry such as trading, you often feel that you need to find people who have the same interest, people who are already trading, but this is not necessarily the case, in fact, the people who are best to keep around are the people who are already there There are reasons why they are your friends, they may be easy to talk to, they may understand how you think, they are the sort of people that you need to keep close and to be available to talk to. You don’t need to force them to learn and understand trading, the feelings that you get from trading are the same as anywhere else, so they will understand what you are going through.

Your friends and family are there to support you, if you let them know that trading is important for you if they truly care for you then they will be there to support you through it, they won’t necessarily understand what you are talking about, so getting too technical may be a bit much for them, but for general and emotional support, they are some of the best people for it.

Other Traders

You cannot become a successful trader by yourself, there is never enough time for you to learn everything or to fully understand things without the help of others. While friends and family members being around is great, they do not have the understanding of the more intricate things to do with trading, this is why it is important to find a group of other traders that you can also call on. These people actually know what you are talking about when you mention pips and spreads, so when you have questions about something or need to rant and rave about something in the markets, these people are the ones to call on.

They will also be able to give opinions on your trades, your strategies and you will be able to use their trades and ideas to create new techniques and ideas of your own, using their knowledge to help compound your own, it is also healthy to have debates, to works out what something works the way it does and to ultimately have people around who have a similar mind and interest to your own. There are plenty of places around, forums, message boards, even physical trading groups are available, so it is easy to find others with the same interest, so be sure that you do.

A Mentor

Not something that is a necessity, but if you are learning to trade through a course or program, the mentor and tutor that is teaching you should be an expert in the field and for that reason, they would be a great person to talk to when you need support. Whether it is learning a new strategy or you are going through a stressful and hard time, they will know exactly how you feel and may have ideas on how you can get out of it and start to feel better. The only problem with this is that there are so many dodgy and scam mentors out there, but if you manage to find a legitimate one through your course, they have a wealth of information and tips, and they are certainly a source that you should be utilising.

Support Charities

There are official support groups out there, if you are feeling under constant stress or are feeling that you are removing more into the realms of gambling than trading, then there are support groups out there, in the UK there are gambling support agencies such as GambelAware, in the US there is NCP Gambling, wherever you are there is help available. There is also plenty of stress and anxiety-related services available. Do not feel shame if you need to use their help, it is what they are there for and there are many others going through the exact same thing, otherwise, they would not exist in the first place.

It is important to remember that you are not alone, whether someone has an understanding of what you are doing or not, they are there to help, talk to people, do not let yourself fall into a hole that you cannot get out of, talk to others about how you are feeling, talk to others about your trading and most importantly, do look after both your mental and physical health.