Forex Support Levels
There are several different Forex levels that traders can check off the list of possible stops or highs on a chart. Some are short-term, but all of them are important. Here are three that you can start with.
The first Forex support level is usually about two thirds of the way up the chart. If the currency is off from this level, it is likely that it will either fall back below this line or possibly break out to one side. If it stays above, however, it will be showing a stronger indication that the currency will make a move. In either case, this line will provide a clear indicator of whether the currency is likely to continue to rally or begin to slow down.
Once the price action on the chart has started to take off and there is a major uptrend, traders have been known to check Forex support lines at both the lower and upper areas of the chart. Once these lines start to cross, traders may be in for some good things to come. For example, if the currency breaks out above this line, they will get some cash profit and also a good chance of seeing the currency continue to increase in value.
The price action on the chart indicates that Forex support is likely to be somewhere between the low points of the previous two weeks and the high points of the previous month. At the lower end of the support area, a signal for potential gains will appear as the price begins to increase. On the upper end of the support line, it is also common for prices to rise above this line, as it is a sign that a reversal may be near.
The next two Forex support lines are going to be slightly shorter in length. They are usually shown by a bar chart. They are there as a price action signal for traders to begin buying the currency and hold off on selling until the support line is broken. The most important thing to watch for with a price support line is whether it is already broken. If it is not, it may be too late to act as it may already be too high. It is the act of selling the currency when the support line has been broken that is going to be critical to the success of the trade.
The final Forex support line that you will want to check is found on the horizontal axis. This line shows the actual point where the currency has reached the support level. This line will usually be lower than the other lines, which indicates that the currency is going to be more exposed to a selloff at the time.
Keep in mind that the price action is going to indicate whether the currency is likely to go up or down. However, it is the price action that is most important and that is the line that you will be checking first.
The bottom support line is a little more difficult to identify in the technical indicators. In the case of a downtrend, traders are going to watch the moving averages, which are lower points on the chart. If a new support line is reached after the moving averages, it could be a strong indicator that the currency is going to be pushed higher and that there is no chance of a reversal.
Keep in mind that if the moving averages do not cross the support line, it is likely that the currency will continue to drop until it hits its bottom. Once the currency is well below the support line, it may begin to climb.
Finally, keep in mind that a long-term trend line is not enough to indicate a successful trade. If the currency is falling below the trend line, it is probably a good idea to let it recover before you make a move. Just because the trend line is positive does not mean that the trend has turned.