Support and Resistance

The most basic and important step during chart analysis is marking the support and resistance areas. Support and Resistance play an integral part in any successful trading strategy. So first lets look in to what is support and resistance.

Let's look in to a candlestick chart of EUR-USD.

In this chart we can see that the price is moving up.The price on 10th October was around 1.2868 and as on 17th October it is around 1.3117. So the price has moved up for about 249 pips. But the movement is not through a straight line. After 10th October the price has come down and the again went up till 11th October then again it came down and so on.The price has created a number of high's and low's before reaching the value of 1.3117.

The yellow circle you see in the chart is one such high and it is called a PEAK.

Round numbers and Very big round Numbers

Round numbers: Price values ending with .0500, .0600 etc

Very big round numbers: Price ending with   .0000, .1000,.2000 etc

Importance:

Round numbers and very big round numbers can act as a supportor resistance level in some cases.

See the chart above, the encircled portions indicate the rejection from round numbers. The price was coming up and when it reached the level of 1.3000 which is a very big round number the direction of movement reversed. Price couldn’t break that level and it fell down. This is a typical example of round number acting as resistance. The price fell down till a level of 1.2900 which is also a round number and found support at that level.