What are support and resistance levels?

Support and resistance levels can help traders gain extra insight into the strength of a price trend. Here we define support and resistance levels, explain how to identify and draw both lines, and more. What is support and resistance?

What is the psychology behind support and resistance?

The rationale is that as the price rises and approaches resistance, sellers (supply) become more inclined to sell and buyers (demand) become less willing to buy. Let’s use a few examples of market participants to explain the psychology behind support and resistance.

How do support levels work in a downtrend?

Support levels indicate where there will be a surplus of buyers. In this way, resistance and support are continually formed as the price moves up and down over time. The reverse is true during a downtrend. In the most basic way, this is how support and resistance are normally traded: Buy when the price falls towards support.

What happens if a support or resistance level breaks?

When a support or resistance level breaks, the strength of the follow-through move depends on how strongly the broken support or resistance had been holding. With a little practice, you’ll be able to spot potential forex support and resistance areas easily.