If we look at price movements, we will see that prices never move in one line that really straight. Price rises and falls is a natural scenery, but if we look more closely again, then we could see the price trend at the time.
Let’s consider again the example the trend in the previous section. Up, down, up, down, then the formation of peaks and valleys have become characteristic of price movements.
We can see that the price is always stopped at one point the top, down again and stopped again at one point in the valley, rose again and stopped again at the top of another, and so on. The price was stopped at certain levels, called the “support” and “resistance”. This time we will discuss both those levels.
Support is a level that is able to “stop” price moves down. at those levels, higher demand than supply. In other words, more buyers than sellers. The effect will stop down and prices began to creep up.
These points will be important at the time you’ve been doing the trading. Without the support and resistance is understood, you like looking for needles in hay in the dark of night without knowing how long the trend of age and what steps should be taken if things suddenly turned.
In technical analysis, one way of determining the level of this support is to draw a line we call the ”trendline”. For example, when we can draw a trendline uptrend this by connecting a minimum of two valleys. For example we can see in the picture below:
That red line is the trendline, and here it serves as a support level.
In the picture there are four valleys which appear connected with the trendline. The more points (valleys) that can be connected by this trendline support level to make it as a more valid (strong). The stronger the support level, the more likely prices will “bounce” up again when it touched that level.
We already know that the best position when the uptrend come off is taking a BUY position. Well, we can use this support level as a benchmark. Where the level of the best BUY? BUY level best to execute as close as possible to the level of support. During the level of support has not been successfully penetrated by the price down, then the price movement could still continue to rise.
So be careful if the price broke through the level of this support, there is a possibility the uptrend will end, and prices will stop moving up.
Having an opposite characteristic with the support, resistance is a level with ability to “restrain” the rising price movements. At that level, supply is more higher than demand. In other words, more sellers than buyers. As a result, prices will stop rising and begin to move down.
Resistance can also be drawn with trendline assistance . The difference by drawing support is at this time we can draw a downtrend trendline by connecting at least two peaks. For example we can see in the picture below:
The trendline’s function as a resistance.
In the picture there are four peaks which appear connected. Alike with the support, the more plenteous points connected the top it makes mentioned resistance is getting stronger. The stronger the resistance level, the more likely the price will be “bounced” down again when it reach that level.
If BUY is the best position when the uptrend popped, the downtrend at its best position is to SELL. Now, we able to conclude the resistance as a benchmark time when we can SELL. The best level of SELL is closest position to the resistance. During the unsuccessfully penetrated upward by the price on resistance, then the prices could still continue to fall.
Do not switch your viewpoint away. Be wary if the price broke through the resistance level, the expiration downtrend is promising a new kind of action to do.
Many traders not infrequently anticipated the end of the trend by taking a particular point of resistance or support. There was a period when they acted contrary by taking steps to do some taking profit. For example, if we do BUY positions at the beginning then later they sell the currency which had they been purchased.