Support and resistance lines are effectively part of trend identification, but in this case, the market may be ranging – narrowly or widely – between certain price values. A line drawn through common upper prices is known as a "resistance" line, and the line through common lower prices is known as a "support" line.
The importance of support and resistance lines is that:
They identify upper and lower boundaries between which the price may range or "bounce" backwards and forwards. This feature allows traders to set stops just outside these values with some confidence,
They can signal the start of significant trends when prices break through either line. These are called "breakouts" and the strength of the break through the line is important to note for potential signals.
|Support/Resistance Indicators||Useful in Forex?|
|Average True Range (ATR)||Yes|
|Commodity Selection Index||No|
|Modified Keltner Channel||Yes|
|Moving Average (variable)||Yes|
|ODDS Probability Cones||No|
|Relative Volatility Index||Yes|
|Standard Error Bands||No|
There are many factors that affect exchange rates of currencies. However some are more important in currency trading than others. These are; Interest and Inflation rates, Trade balance, Currency market speculation, Foreign investment and Central bank market intervention. Learn how to use these factors in your forex tra ...