Support and resistance levels in forex are a major tool to use when trading. support and resistance levels indicate which is the lowest or highest price the market is willing to buy of sell at.
A support level is the price level which buyers are unwilling to pay any higher for, causing prices to reverse back to a lower level, later retesting this level of support.
A resistance level is when a price has reached a price which the market thinks it is at the best price to buy, causing buyers to buy, and the price to rise .
How to use support and resistance levels when trading
These levels are important to looks for, they can give you an idea of what the market thinks the currency paid is worth. There are two ways of using these levels, either trade the rang between the two levels or trade on a breakout.
Range trading is when you sell at the resistance level and buy at support. This is a good strategy to use when the market is in a sideways movement with the market trying to decide on a price. When price hits the support level you buy, leaving your stop just below the support level incase the price breaks through, aiming to take profit just below the resistance level. And the opposite would be done when price it at the resistance level.
Trend trading is when the buy or sell when a support or resistance level has broken. If one of these levels has broken it means that the market has decided either the currency has risen in value or it has dropped, this could be because of recent news affecting the pair. To trade this you would buy when the price has broke a resistance level, putting your stop jus below the resistance level, aiming to take profits at equal distance of the previous range.