In technical analysis, a support line is a price level that resists the attempts of traders to sell of the currency, while a resistance line is a price which cannot be exceeded by buyers on a bullish phase. In cases where both of these values exist, we will be speaking of a range pattern. A support/resistance level is stronger the more often it holds, and is erased as soon as it is breached. When the price action visits the same region, past support/resistance levels may hold once again.

What happens at a support/resistance level? These price levels in fact represent clustered orders where various large players have significant limit positions that await testing by the market action. We can think of an uptrend as consisting of successive leaps and jumps between these resistance levels, as the price moves almost unimpeded between them. It is even possible to trade the markets on the basis of information provided by support/resistance lines alone, You create your buy and sell orders based on order flow data, and take care of risk by adjusting the risk/reward ratio carefully.

How do you drive a support/resistance line? In the ideal case, you do so by exploiting information about order flow, but traders are rarely privy to that kind of information. If you like to receive this type of data, we suggest opening an account with an ECN. In case this fails, traders can draw support/resistance lines by noticing the price levels that held out most often in the past, and connecting them together. Support lines are essentially the same as resistance lines, and are drawn in the same way. The only exception is the direction of approach: a support line is approached from above, while the resistance level is tested from below.
This technical tool has been proven to be effective through several studies over the years, and it has great potential in the hands of a committed trader. Beginners can make use of them with ease, and only a period of preparation is necessary.

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