Resistance level.
One of the most important concepts that are used when conducting technical analysis on Forex is the resistance level. It is this indicator that underlies many trading strategies and is widely used in stock trading.
Resistance level is a point or line on the chart of a currency pair that characterizes the maximum price value for a certain period of time, upon reaching which the trend reverses.
The longer the price fails to overcome this level, the more significant it is considered, and the likelihood of a breakdown increases, after which the trend will continue its movement towards growth.
Options for resistance levels.
1. Point – in this case, the maximum price indicator (maximum) in the reporting or previous time period is used as the maximum level value.
For example, the maximum price over the past day for the EURUSD currency pair was 1.3000, today the price moves within the range of 1.2940 to 1.2990, but still, yesterday’s value of 1.3000 dollars per euro is considered a more significant resistance level .
Therefore, when placing pending orders for a breakout, it is more logical to indicate the value of their activation in the region of 1.3000 - 1.3020 dollars per euro.
2. Resistance line - allows you to more fully assess the dynamics of the trend movement, but several significant maximums, at least two, are already used to build it.
This line can also characterize the current direction of the trend on the working time frame. And if you extend it further beyond the current price value, you can see the immediate prospects for its movement.
The construction of resistance lines is carried out using built-in tools in any of the trader’s terminals.
After a breakout has occurred and the price has moved further upward, the resistance line turns into a support line.
Trading strategies.
Breakout – this is the main option that is used when using resistance level, it means that if a trend has not been able to overcome a certain price indicator for a long time, then in the event of a breakdown there is a high probability of its continuation. It is this rule that serves as a signal for opening new positions on Forex. This trading option is fully described in the article “ Level Breakout Strategy ”.
Rollback is one of the strategies for trading against the trend; trades are opened here when the price makes a reversal at the resistance level and begins to move in a downward direction. In this case, before starting a transaction, you should accurately determine its duration and the amount of expected profit, taking into account the support level on a given time frame.