Know where the Key Support and Resistance Levels Are
Understanding Support and Resistance
is one of the essential concepts in trading. Support and Resistance is defined as key price levels where both buyers and sellers have expressed interest and traded enough volume that it has caused prices to halt or stop and reverse creating an important swing level. A trader would use these levels to gauge future price levels wherein buyers and sellers will likely enter the market in the future. Horizontal price lines can be drawn where price has traded and reversed to create an important Support or resistance zone that should be watched closely.
It should also be noted that the higher the time frame on which a key support or resistance level forms, the more reliable it is. For example, a Support level formed on a daily chart is much more credible than one that is formed on a 30 minute chart. Higher time frame support and resistance levels are those that have formed over a much longer time period, and surely has more participation during its formation.
In addition most large players in the markets, those that can move prices, such as hedge funds, and other institutions, tend to watch Support and Resistance levels formed on the Daily charts for example, much more closely than they would on smaller intraday timeframes. S/R levels can be helpful in both trade entry and trade management. For example, if you are bullish on a particular forex pair, then you could initiate a long position as price approaches a support level or if you were looking for an opportune time to exit a short position, then you could use the Support zone in our example, as a target as well.