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Support and Resistance levels (page 2)
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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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