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Support and resistance lines are two of the most important trading lines that any trader will come across. The reason why is because they define a price area where the current trend is likely to reverse. Every trend has an end, but without the support and resistance lines, that end can be difficult to predict.
By definition, a support line is a horizontal line that reverses the current down-trend back up into the upward direction. In order to qualify as a support line it needs to have two or more hits on it, which is applied by the down-trend pressure. It is the failure of those and following hits to penetrate the support line that makes this into an important area of analysis.
A resistance line is the opposite of the above. It is a horizontal line that reverses the current up-trend back down into a down-trend. In order to qualify as a resistance line it also has to have two or more hits on it; applied by the up-trend pressure. It is this failure to penetrate the horizontal line that turns this into an important area to analyse.
In simple terms this is when:
In either case, once the line is penetrated the market can come back and re-test the line from the opposite direction. It is the re-test that changes the definition of the line i.e. turns one into another. Watch the full Forex training video for an in-depth explanation.