Support and resistance levels represent significant price levels where buyers and sellers meet. To identify them, you simply need to draw a straight line over the peaks (resistance levels) and lows (support levels) of a movement (bullish, bearish or neutral). To define a reliable support or resistance level, you must connect at least three points. The strength of the rebounds off of these support and resistance levels also reinforces the significance of these price levels. The strength of a support or resistance level can also vary depending on whether we are observing a long-term movement within a major trend or a short movement within the medium-term.
Resistance levels illustrate price levels where the sellers are stronger than the buyers. As for support levels, the buyers are stronger than the sellers.
A break through a resistance level (a breakout) may indicate an acceleration of the forex pair's bullish trend, and a break of a support level can indicate a trend reversal. However, false breaks can occur, so it is best to define zones of support or resistance rather than specific price levels.
A break will be confirmed as reliable when the support level becomes a resistance level or when resistance becomes support. (Overlap area)
The identification of support and resistance zones is a key component of technical analysis. Although it is sometimes difficult to establish an exact price level, it is important to be aware of their existence in order to improve your forecasts of the probability that price will move in a particular direction.
When the price approaches a support level, this may be a sign that growing buying pressure has returned, and the opposite is true when price approaches a resistance level. A break through a support or resistance level signals a change in the relationship between supply and demand.
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