Figuring Out Support And Resistance

What is support and resistance?

Best way to figure out the future is to scroll back in time and look. In today's example I used the daily EUR/USD chart and I scrolled back 2 years.The red boxes represent resistance and the turquoise boxes represent support. Support is the lowest level and it provides a sort of a cushion. When the market approaches support levels it usually tests them and bounces back. In a perfect world the market will always be bouncing back these support levels and we will always make money. That is not the case because the market can break through these supports and keep going further. In the diagram you can see the all time low is the 1.05 which has been touched 3 times. That is a good indication that it will be rather difficult to break those levels. If you were trading you would buy at these support zones.

Resistance on the other hand is the highest point that has bounced back. In the past 2 years this resistance zone has been the 1.137-1.145 area. If you only traded support and resistance I would recommend selling in that area.

Resistance can become the new support. The orange arrows clearly show that the left resistance area is now the new support area because the market has been more bullish. Based on only the information of support and resistance I can predict that the EUR/USD will be bullish because it is actually at a support level right now. This is not 100% certain, but as long as no major catastrophic news happens it should be bullish for the time being.

You can also combine support and resistance zones with trend lines. If a breakout happens inside a major resistance zone then it is most likely going to be bearish. I will provide an example below.

When you start combining different techniques it becomes pretty accurate at predicting market movement.

Hope this helped out.

Best,

ManBearBull