The Importance of Support and Resistance in Forex Trading

Forex trading is one of the most popular forms of solid investment nowadays. While you can earn big money by engaging in the Forex market, you can, in the same way, lose huge sums of money if you're not careful. One way to ensure your success is to do your homework and understand all concepts that the industry uses, one of which is the plotting of support and resistance.

When you look at the upper and bottom borders found in trade channels, you'll see what are officially called the support and resistance lines. The resistance lines are the peaks representing the price levels wherein the selling pressure moves to exceed the buying pressure. The support lines, on the other hand, are the troughs representing the price levels wherein the selling pressure fails to exceed and in fact gives in to the buying pressure. One of the tricks in earning significant money from Forex trading is plotting support and resistance in order to check warning signals and make the necessary changes in trend lines.

Trend lines promote the real importance of support and resistance. Trends uphold time and volume; the trend becomes more significant when the prices remain bouncing off the support and resistance levels for longer periods of time. Once a firm support level is penetrated on heavy volume, it enjoys a higher probability of turning into a firm resistance level as well. The converse of this is also true. Thus, by having a firm grip of the support and resistance levels, a trader engaged in Forex trading can make an informed decision to either close or save his or her current position according to the signals shown in the trade channels.