Wednesday, April 22, 2015

Lines of Support and Resistance

The upper and bottom borders of a trade channel (See Figure 5.14.)
forme lines of support and resistance. The peaks represent the price levels at
which the selling pressure exceeds the buying pressure are known as
resistance levels. The troughs, on the other hand, represent the levels at
which the selling pressure succumbs to the buying pressure. They are called
support levels. The longer the prices bounce off the support and resistance
levels, the more significant the trend becomes. Trading volume is also very
important, especially at the critical support and resistance levels. When the
currency bounces off these levels under heavy volume, the significance of the
trend increases. The importance of support and resistance levels goes beyond
their original functions. If these levels are convincingly penetrated, they tend
to turn into just the opposite. A firm support level, once it is penetrated on
heavy volume, will likely turn into a strong resistance level. Conversely, a
strong resistance turns into a firm support after being penetrated.




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