Forex Currency Trading Tutorial – What Is Support?

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If you are just starting to learn about the forex markets, and currency trading, then I have no doubt that you may already have come across the terms resistance and support. These two concepts are pivotal to you trading successfully. It is critical that you fully understand what causes them, and how to spot these areas of support and resistance on your currency charts.

In the normal cyclical movement of the market the price is influenced completely by sellers and buyers. If there are more sellers than buyers at any given period then the price action will be moving downwards. Conversely, if there are more buyers than sellers at any given point in time then the price level will be trending upwards.

To keep this tutorial short I will discuss only support, and you can take the inverse of this information as the root cause of resistance. For the purposes of our explanation here lets also assume that the price in the market is decreasing – in other words we assume a bearish market.

Support is going to be caused by a large number of buyers (buy orders) waiting anywhere below the current price. Nobody ever knows where other traders buy orders are laying in wait, but there are many reasons why such a big group of buy orders may be located at a particular level.

Round numbers are very often levels to keep a careful eye on. For example, a very round numbered price like 1.5000 on the EUR/USD might well be a price level that big players (central banks, and funds) would place buy orders. Also, big options traders may place orders ahead of their option strikes in an attempt to defend them should the market approach those levels. The reasons are way too numerous to mention them all. You just need to be aware that, at certain levels, a falling market will encounter some serious opposition.

The nett volume of these buy orders may well be strong enough to overcome the nett volume of the sell orders causing the current price drop. Whenever this happens the price will battle to break below this level of buy orders. In fact, the buy orders may be of such a high volume that they completely overcome the current sellers, and the price bounces, or could even reverse direction ,starting a new trend.

This level of STRONG buying is known as a support level, or an area of support.

Think of it this way – if you jump off the roof you begin to fall. At some stage you are going to encounter the ground. If the ground is hard it will be tough enough to stop your fall. It offered you support.

Why is it so crucial to your successful trading that you be able to spot these areas of support?

Well, you do not want to take a a short trade just before a support level. There is a good chance that the price action may bounce, and stop your trade out for a loss. Instead, you rather want to wait and observe the price action around that support level. Then enter your short trade only once that level of support gives way, and the downward momentum in price continues.

Keep your currency trading plan simple, and never stop learning.

Author Info: Nicolette is a part time currency trader, and a full time author writing on a wide variety of niche topics. Be sure to visit her womens bowling shoes website for some detailed information, and links, to great deals on the major brands of bowling shoes.

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