Resistance Explanation
Resistance refers to a price level at which a currency pair tends to stop rising and may reverse direction. It acts as a “ceiling” for the price, where selling pressure increases as the price reaches this level, making it harder for the price to go higher. Traders identify resistance levels by looking at previous highs in the price chart, where the price has stalled or reversed in the past. When the price approaches resistance, traders often see it as a signal to sell.
If the price breaks through a resistance level, it is considered a breakout, and the price may continue to rise until it reaches a new resistance level.
Resistance History
The concept of resistance has existed in technical analysis for as long as traders have used price charts. It became prominent as charting techniques evolved in the 20th century, with traders noting that price often failed to exceed certain levels, making resistance an important tool for predicting price reversals. Resistance levels help traders understand where supply (selling interest) is likely to overwhelm demand (buying interest).
Resistance Etymology
The word “resistance” comes from the Latin resistentia, meaning “to stand against” or “to oppose.” In forex trading, resistance refers to price levels where upward movement is “resisted” or opposed by increased selling pressure, preventing further price increases.
People Also Ask
What does trade resistance mean?
How to identify resistance?
What does the resistance tell you?
What does trade resistance mean?
Trade resistance refers to the point where the price of an asset (like a currency pair) meets selling pressure that prevents it from rising further. It is a critical concept for traders, as it helps identify potential areas for price reversals or stalls.
How to identify resistance?
Resistance can be identified by looking at past price action, especially previous highs where the price reversed or stalled. A price level that the currency has struggled to break through multiple times can be considered resistance. Technical tools such as trendlines and horizontal lines are often used to mark resistance levels on charts.
What does the resistance tell you?
Resistance tells you where selling pressure is strong enough to stop an upward price movement. It indicates areas where the market is likely to face difficulty breaking through, and it can signal potential reversals or consolidations. If a price breaks through resistance, it suggests a change in market sentiment and the potential for further price increases.
