All professional traders and large institutions use support and resistance levels. Traders use support and resistance levels to trigger trades and to set their targets. Importantly they also use them to set their stop losses which will get them out of their trades if the market goes against them. Support and resistance levels play a part in every market and on every trading timeframe so whether we are day trading or swing trading finding and drawing high probability support and resistance levels is a key skill to have and should be part of our daily ritual.
Support and resistance trading is an approach to the market where designated technical areas are viewed as points of contention. Price is unlikely to move through these areas unfettered — its path will be challenged. Resistance is an upper blockage appearing at the end of a bullish trend. It represents the point at which sellers outnumber buyers and the price begins to retrace to the downside. Conversely, a lower blockage appearing at the end of a bearish trend is known as support.
Support and resistance can be very useful since many currency pairs usually vary between these levels. When trading in a range the trader uses for the identification of trades, and thereby places an order for purchase near the line support, and an order for sale near the line of resistance. The market follows a price of the opening, closing, highest price and the lowest price for the day. These are the basic information required to calculate the support resistance levels. Since many traders monitored support/resistance levels, and the market usually reacts to the same.
Support, as the name implies, indicates a price level or area on the chart under the current market price where buying interest is sufficiently strong enough to overcome selling pressure. As a result, a decline in price is halted and prices are turned back up again. The troughs and peaks of trend lines are also known as support and resistance levels respectively. The identification of these levels represents one of the most important skills in technical analysis.
Resistance is the opposite of support. It represents a price level or area above the current market price where selling pressure may overcome buying pressure, causing the price to turn back down against an uptrend. It should be emphasized that an existing prior high does not imply that subsequent rallies will definitely fail at or below that high with pin-point accuracy, but rather that resistance could be anticipated in the general area.