Support and resistance are basic ideas that you will come across, whether you are trading currencies or stocks and shares. Markets do not move in a linear fashion. They tend to move in one direction, and then track back in the opposite direction, before resuming in the first direction. A shame isn´t it- if they all just moved in one direction, then it would be so easy to execute a profitable trade!
Resistance refers to a “ceiling” or high point of the market´s movement. If prices have increased to a certain point, and then dropped back, we call that price level the resistance. Of course, it all depends on the time period that you are looking at. The last hour resistance levels may not be the same as yesterday´s or last month´s resistance level.
Conversely, the lowest point that the market hit before it tracked back up again is called the support. Think of it as an invisible force field that traders are trying to break through.
Remember, that this is not an exact science (statistics never are). You´ll often see markets nudging above resistance levels and then dropping back as if they are pushing their luck and testing the level. If the price closes above the resistance level, you could say that it has been broken- but for how long? if it was a quick toe in the water, it was probably more of a test. You can either nudge the level up a bit, or keep the original line.
The best way to visualise these levels is not as an exact number,but more as a range of prices, or band. Of course, if the market does break through one of these resistance zones, you are in a different paradigm- your resistance has become the new support.
Look for resistance or support levels that stand the test of time. The longer they survive, the stronger they become, unless an event forces prices through the floor or roof of your trading band. And the stronger they are, the better your ability to predict the markets.