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Support and Resistance

Discussion in 'Forex Beginner Q&A' started by mark04, Oct 26, 2009.

  1. mark04

    mark04 New Member

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

    Support does not always hold and a break below support signals that the bears have won out over the bulls. A decline below support indicates a new willingness to sell and/or a lack of incentive to buy. Support breaks and new lows signal that sellers have reduced their expectations and are willing sell at even lower prices. In addition, buyers could not be coerced into buying until prices declined below support or below the previous low. Once s

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

    Resistance does not always hold and a break above resistance signals that the bulls have won out over the bears. A break above resistance shows a new willingness to buy and/or a lack of incentive to sell. Resistance breaks and new highs indicate buyers have increased their expectations and are willing to buy at even higher prices. In addition, sellers could not be coerced into selling until prices rose above resistance or above the previous high. Once resistance is broken, another resistance level will have to be established at a higher level.

    How to Calculate?

    Pivot = (High Point + Low Point + Close Point) / 3 (example)
    Range = High Point - Low Point
    3R [3rd Resistance] = 1R + Range
    2R [2nd Resistance] = Pivot + Range
    1R [1st Resistance] = Pivot + (Pivot - Low)
    H [Yesterday's High]
    P [Pivot Price, i.e. Midpoint]
    L [Yesterday's Low]
    1S [1st Support] = Pivot - (High-Pivot)
    2S [2nd Support] = Pivot - Range
    3S [3rd Support] = 1S – Range


    Best Regards
    Mark
     
  2. sininfinity

    sininfinity Active Member

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    Support and restance are very important tool for a trade. It is very useful for all kinds of traders. If drawn properly on chart then it can help predict price movement.
     
  3. vic84

    vic84 New Member

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    Very nicely explained, support is the level at which the prices are stable and resistence is a level from which the prices wont go up.
     
  4. sininfinity

    sininfinity Active Member

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    Support and resistance levels won't always hold. They may hold few times at certain level but it will break eventually.
     
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