The basis of most trading pattern and strategy is formed from support and resistance levels
. Support and resistance levels are best described as levels in which a price is having difficulty breaking through.
In a buy situation the price may move up to a certain level then drop down then move back up to the same level several times, this level will become resistance.
In a sell situation the price in which the currency is having difficulty succumbing is known as the support level.
The result of these levels become the signals for traders to enter a trade as a continuation of the trend is usually imminent and a new support or resistance level will be formed on the next technical level. The use of support and resistance levels doesnt just give a guidance to trader when to enter a trade ,but also it can guide him, to exit a trade or where to place his stop loss.
The practice of building support / resistance levels, despite its simplicity is often an effective tool for forecasting price movements in financial markets. The logic is that when the price start to decline and moves towards the support line getting cheaper, buyers become more inclined to buy and sellers become less inclined to sell. When prices start to rise and move towards the resistance line, the seller becomes more inclined to sell and the buyer becomes less inclined to buy. Criteria to assess the validity of the breakdown level of support / resistance is identical to the criteria of the breakdown of the trend line.
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