Support Explanation
In forex, support refers to a price level where a currency pair tends to stop falling and often bounces back up. It acts as a “floor” for price movements, meaning that demand for the currency increases as the price approaches this level, preventing it from dropping further. Traders identify support levels by looking at past price action where the currency pair has previously reversed or stalled. When a currency approaches support, it is generally seen as a good opportunity to buy.
If the price falls below a support level, it is considered broken, and the price may continue to decline until it finds a new support level.
Support History
The concept of support in trading has been around for many years, emerging from the study of price charts and technical analysis. It gained significant attention in the early 20th century when traders started to observe that certain price levels consistently acted as barriers to price movement. The term became more widely adopted as charting techniques like trendlines and moving averages began to take shape, offering a clearer view of market structure.
Support Etymology
The word “support” comes from the Latin supportare, which means “to bear up” or “to sustain.” In forex trading, it refers to the price level that “supports” the currency’s value by providing buying interest that prevents further decline.
People Also Ask
What’s the difference between support and resistance?
Do support and resistance really work?
What is the psychology behind support and resistance?
What’s the difference between support and resistance?
Support is a price level where demand for a currency is strong enough to stop it from falling further. It acts as a “floor” for the price.
Resistance is a price level where selling pressure is strong enough to stop a currency from rising higher. It acts as a “ceiling” for the price.
While support prevents downward movement, resistance prevents upward movement. These two concepts are critical for understanding price action and trend behavior in the forex market.
Do support and resistance really work?
Yes, support and resistance levels are widely used by traders because they reflect market psychology. At these levels, there is a significant shift in supply and demand, causing price reversals or stalls. However, they are not always perfect, and the market can break through support or resistance during high volatility or when fundamental factors come into play.
What is the psychology behind support and resistance?
The psychology behind support and resistance lies in the behavior of traders. Support levels are where traders believe a currency is undervalued, leading to an increase in buying activity. On the other hand, resistance levels are where traders believe a currency is overvalued, leading to an increase in selling activity. When these levels are tested, it reflects a battle between buyers and sellers, with the prevailing side causing price movement.
