Elementary Forex – Support and Resistance

In Forex our goal is to BUY when the price is LOW and SELL when the price is HIGH (for a long trade).  Or, conversely, our goal is to SELL when the price is HIGH and BUY when the price is LOW (for a short trade).    In order to identify the optimum time to buy or sell a trader needs to identify when are the best times.  To help with these identifying points we rely on the support and resistance for a currency pair at any point.  Let’s look at this chart:

The above chart is the USD/CAD currency pair.  Clearly on this daily we see the trend upwards in the currency pair.   Normally we would want to take a LONG position on this pair right now.  So, what are the support and resistance and how can we calculate them?

Support — The lowest point where you would want to open a position and protect loss of investment.

Resistance — The highest point where you would want to close a position and take a profit.

Often support and resistance are not specific amounts, but an area around a range.

On the above chart, and for a long position, we can see that the resistance would likely NOT be higher than 1.15.   In fact, we probably would not expect it to exceed growth to November 4.  We could attempt to go higher, but this is the conservative resistance.

Similarly, we can see that the currency pair is trading at around 1.13792 and that the lowest daily shortly before was 1.12480.   We would like establish this as the support position range to help us determine the comfort level.

In a bearish position, the analysis is the opposite:

Support — The highest point where you would want to open a position.

Resistance — The lowest point where you would want to close a position and take a profit.