We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bullish
GBP/USD
Bullish
USD/JPY
Bearish
Gold
Bullish
Oil - US Crude
Bearish
Bitcoin
Bullish
More View more
Real Time News
  • Forex Update: As of 03:00, these are your best and worst performers based on the London trading schedule: 🇬🇧GBP: 0.23% 🇦🇺AUD: 0.16% 🇪🇺EUR: 0.11% 🇨🇦CAD: 0.07% 🇳🇿NZD: 0.04% 🇯🇵JPY: -0.00% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/PZOhmaDnAg
  • Interesting to see how this will impact CDS spreads on sovereign bonds and impact on INR @ddubrovskyFX https://t.co/HuuJiEn8E4
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 98.02%, while traders in US 500 are at opposite extremes with 76.09%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/soA1hKBbBG
  • Some of top event risk over the next 24hrs are: UK’s General Election – Polls Open [7:00 GMT], European Central Bank Rate Decision [12:45], and Bank of Canada’s Stephen Poloz Gives Speech in Toronto [17:30] #GBP #EUR #CAD
  • The $USD may rise on the #FOMC rate decision, while the British Pound, Swedish Krona and Norwegian Krone may gain on the UK election and #ECB outlook. Get your market update from @ZabelinDimitri here: https://t.co/WvWHP8D710 https://t.co/4D8H070WIs
  • #LITECOIN Daily Pivot Points: S3: 41.46 S2: 42.58 S1: 43.02 R1: 44.14 R2: 44.82 R3: 45.94 https://www.dailyfx.com/pivot-points?ref=SubNav?CHID=QPID=917720
  • USD/CAD IG Client Sentiment: Our data shows traders are now net-long USD/CAD for the first time since Nov 08, 2019 when USD/CAD traded near 1.32. A contrarian view of crowd sentiment points to USD/CAD weakness. https://www.dailyfx.com/sentiment https://t.co/hy81bC6Hqc
  • RT @next_china: China is expected to offer some details on its 2020 economic strategy soon. Here's what to look for. https://t.co/IFvwiNrZ1z
  • RT @onlyyoontv: “US officials have reportedly offered to cancel the planned tariffs for a phase one trade deal, but Chinese officials insis…
  • Over the past 30 days, #ARS, #MXN and the #COP have been the best performing Latin American currencies vs. USD with 0.42%, 0.03% and 0.01% total returns.
Forex Support and Resistance Explained

Forex Support and Resistance Explained

2014-01-21 20:15:00
Gregory McLeod, Currency Analyst
Share:

Support and Resistance Talking Points

  • The concept of support and resistance forms the basis of Forex technical analysis.
  • Forex traders look to buy at or near areas of significant levels of potential support in an uptrend
  • Forex traders look to sell at or near areas of significant levels of potential resistance in a downtrend.

You may have heard of the old business cliché “buy low and sell high”. New forex traders usually ask the question how low is low and how high is high. One way we can quantify these levels is using areas where price has stopped and changed direction. The area where price stops after moving up and then turns around is called resistance. Resistance acts as a “ceiling” capping the further advance of price.

Support and resistance in Forex trading. Buy off of support and sell off of resistance

Resistance is not just some random area where price turns around. There are potential sellers, traders who have sold a Forex currency pair once before and remember the collective power they had to push price lower. There are also buyers who went long at support and were disappointed that price did not go higher and will close their buy positions with sell orders at or just before price gets to the resistance ceiling.

Another group that make up resistance are the ones that bought at or near resistance and are trapped when price fell at resistance. These traders are begging for price to come up one more time to get them out at breakeven. All of these groups work together to send prices lower and make up the “supply” in the supply and demand equation. More supply than demand, price falls, more demand than supply price rises; Resistance=Supply.

Learn Forex: GBPUSD Support and Resistance

GBP/USD chart showing support and resistance over time.

In the chart above of GBP/USD levels of support are highlighted in blue while levels of resistance are highlighted in red. In an uptrend, traders look to buy at support and take profits at the next level of resistance. By entering at or near significant levels in an uptrend, Forex traders can reduce their risk exposure and get a trading opportunity with an excellent risk to reward ratio. Forex traders are able to identify several places to trade with the trend. The levels of resistance can be used as profit target areas or breakout opportunities as price closes above resistance.

Learn Forex: AUDNZD Resistance Sell Zones

AUD/NZD chart showing support and resistance over time.

On the other hand, levels of significant resistance provide ideal entry points in a downtrend. They clearly show countertrend buyer exhaustion at point when sellers return . The next level of support can be used as a target area. Support can also be used as a breakout entry area if price closes below support.

The balance of power is clearly revealed at areas of support and resistance. Price can bounce from a floor and move up to the ceiling and then bounce down. It is important for Forex traders to first identify trend direction and then choose to buy at support in an uptrend or sell at resistance in a downtrend. Additionally, oscillators like RSI and stochastics can be used to identify significant areas of support and resistance.

Next: How to Trade with Support and Resistance (36 of 63)

Previous: Build Your Trading Plan around the Strongest Currencies

Support and Resistance FAQs

Do you have any other resources for new traders?

Get to know the basics of forex trading through our New to FX guide. You will learn what forex is and how to trade it making use of leverage. Furthermore, this essential guide provides an understanding of commonly used forex jargon and how to read a basic forex quote. After reading the guide new traders should be well on their way to developing their own forex trading strategy. Our in house trading specialists present a number of webinars throughout the week. Take a look at our topics via the webinar calendar.

Which chart should I use, Candlestick, Bar or line chart?

Careful analysis of charts is essential to forex trading. Before trading it is essential that you understand how to read the 3 chart types: Candlestick, Bar and line charts. This is explained further in our Introduction to Charting page which will equip you with the basics you need to make informed trading decisions in the forex market.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.