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Support and Resistance levels (page 2)

Support levels are sometimes used to determine good buying opportunities, since the currency may be supported by that level and the currency's price may appreciate again after testing it.

A resistance level shows a trend line whereby the sellers of that currency find those prices along the line more attractive to sell and therefore prevent the buyers from raising the price further.

Sometimes if a support level breaks, its role as a support will transform into that of a resistance. If there is a falling market and a support level is broken, it could then serve as a resistance for the downward trend.

On the other hand, in a rising market, once the trend line for a resistance level is broken, it could turn into a support.

Understanding support and resistance levels is highly important for traders placing Stop and Limit orders. For example, if a trader has an open buy position, he can use the resistance level to serve as a reference point for placing the Sell Limit order and use the support level to serve as a benchmark for placing a Sell Stop order.

Again, it is highly recommended that all traders hone their technical analysis skills while paper trading before committing to live-trading strategy using technical analysis.

Support and resistance levels take on an added significance when used in conjunction with momentum or relative strength, the latter two factors giving a good indication whether a particular level will hold or be broken.

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