6 mins read
Support and resistance trading is an easy concept and experienced traders have been relying on this tool for years to determine market direction, track entry positions, and establish profit and loss exit points.
So what's support and resistance, you ask?
Simple. Support is the level where buying interest overcomes selling pressure, creating a sort of floor under the market.
And resistance? That's the level where selling pressure overcomes buying pressure, creating a ceiling over the market.
You can spot these levels by looking at previous reaction lows and peaks.
But don't settle for just basic support and resistance trading. Take things up a notch with role reversal forex. Keep an eye out for significant market penetration of support or resistance levels, and you can ride the wave of the roles reversing. When resistance becomes support level or support becomes resistance, you're in for a whole new world of trading opportunities and potentially big bucks.
Are you ready to give it a go?
With role reversal forex in your toolkit, you'll be able to spot those reversal points and make savvy trades that set you up for success.
What Is Role Reversal?
Okay, so we know that role reversal is all about support and resistance levels. But what does that even mean?
Let's break it down.
Say you've got a key resistance level that's been holding strong. But suddenly, the market action breaks through that resistance level and experiences a price pullback. This means the price turns around and tries to go back to where it came from.
But if that broken resistance level can stop the price from returning to its pre-breakout levels, then its official resistance becomes support. And voila – role reversal complete.
But what causes this phenomenon?
Well, it all comes down to the sentimental behavior of forex market participants. We're talking about the psychological events that create those support and resistance areas in the first place. When a key level is broken, it's like a switch flips in traders' minds. Suddenly, that level that used to be resistance is now support, and vice versa, support become resistance.
What is the benefit of role reversal forex?
Understanding role reversal can give you a major edge in your forex trading.
So the next time you see a support or resistance level gets broken, you’ll not panic – but see it as a potential role reversal trade opportunity.
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Support And Resistance
Support and resistance are critical concepts in technical analysis that help traders identify potential market entry and exit points. These areas are not just arbitrary but are created through the collective actions and emotions of market participants. The belief that "history repeats itself" is a powerful force that drives the actions of many traders, resulting in the formation of these key levels.
Market participants can be divided into three groups: buyers, sellers, and uncommitted.
Buyers and sellers are already committed to their positions in the market, while the uncommitted traders stand on the sidelines waiting for an opportunity. The entrance of these uncommitted traders can sway the market in one direction or another.
When prices move sharply downwards, active sellers in the market may regret not placing larger sell orders and may decide to sell more of the asset. This causes a brief lack of selling interest at the current price and higher selling interest at a higher price level.
Conversely, buyers whose orders have been triggered may realize they have been caught on the wrong side of the market and may hope for a price recovery. As prices recover, they will be willing to meet these orders by closing their positions at higher levels.
When a price move breaks a support area, sellers may reset new sell orders at the support level to add to their existing positions. As buyers exit their positions at the sell orders, this can cause a pullback in price to the broken support area.
Uncommitted traders who had previously set up short orders and exited the market prematurely may succumb to emotional pressure and open new sell orders at the previously broken support, triggering overwhelming selling interest and resuming the downtrend. This causes the previous support level to become a new resistance.
The reverse is also the case when an upward break of the resistance occurs. Desire by uncommitted traders to buy at lower price levels to maximize gains, addition to existing buy orders by already committed buyers at lower price levels, and exit of existing sell orders by previously committed sellers at lower price levels to reduce their losses, all cause a previously broken resistance to become a support.
Overall, support and resistance areas are critical to understanding market sentiment and identifying potential market movements. By understanding the psychology of traders at different price levels, traders can better position themselves to take advantage of market opportunities.
Final Thoughts
The concept of support and resistance is not simply about drawing lines on a chart, but about understanding the behavior of market participants. Role reversal forex is a key aspect of this behavior. When a support level is broken, it often becomes resistance and vice versa.
Of course, it's important to keep in mind that the forex market is complex and constantly changing. Role reversal is not a foolproof strategy and many other factors can impact FX prices.
In the end, successful trading is about understanding the underlying psychology of the market and using that to make informed decisions.
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