To really understand the behavior of
a currency on the Forex market it is important to see how it has behaved over a
period of time. Taken over the course of a very short space of time, it is
possible to make data mean just about anything. This, in turn, means that the
data will be almost worthless. Over a longer period of time, however, patterns
always seem to assert themselves, and establish a firm basis for predicting the
future behavior of a currency price. Among the most important figures that
appear in a pattern are the support and resistance points.
The point of “support” for any
currency is the price level beneath which a currency never trades – effectively
its market “bottom”. Whenever the price reaches this level, it almost always
bounces back upwards, and for this reason many people will invest when a
currency hits that point. Conversely, the “resistance” point is the traditional
high point of a currency price, above which it never trades. If you are looking
to cash out, this is a good reference point.
Of course, the old saying “there’s a
first time for everything” exists for a reason. There will come a time when a
currency breaks its support or resistance levels, and this is seen as hugely
important. When a currency does this it will be expected to continue this
trend, possibly for an extended period of time. It is therefore a good time to
get “in” if it is rising or “out” if it is falling.
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