16 Questions
What is the primary concept discussed in the provided text?
Support and resistance
What happens to the highest point reached before the price pulls back in a bull market?
It becomes a resistance level
What does a support level indicate?
A surplus of buyers
What is the purpose of plotting support and resistance levels?
To identify trading opportunities
What is a 'bounce' in the context of support and resistance?
When the price bounces back from a support level
What do the shadows of candlestick charts often represent?
Tests of support and resistance
How can you determine if a support or resistance level is truly broken?
There is no definitive answer
What is a common misconception about support and resistance levels?
They are exact numbers
What happened when the price closed below the 1.4700 support level?
The price rose back up above it
What is the conclusion about the support level after the price had closed below it and then rose back up?
The support was not actually broken and is still intact
Why should support and resistance be thought of as 'zones' rather than concrete numbers?
To help filter out false breakouts
What is the advantage of plotting support and resistance on a line chart?
It filters out extreme highs and lows
Why do extreme highs and lows in candlestick charts sometimes mislead?
They are just 'knee-jerk' reactions of the market
When plotting support and resistance, what should you look for on a line chart?
Areas with several peaks or valleys
What will be covered in the next lesson?
How to trade with diagonal support and resistance lines
What is the result of practicing spotting potential forex support and resistance areas?
You will be able to spot potential areas easily
Study Notes
Support and Resistance Basics
- Support and resistance are continually formed as the price moves up and down over time.
- In a bull market, the highest point reached before the price pulls back is now resistance, indicating a surplus of sellers.
- In a bull market, the lowest point reached before the price starts back up is now support, indicating a surplus of buyers.
- The reverse is true during a downtrend.
Trading Support and Resistance
- There are two basic ways to trade support and resistance: "trade the bounce" and "trade the break".
- The concept of "bounce" and "break" will be covered in more detail later.
Plotting Support and Resistance Levels
- Support and resistance levels are not exact numbers, but rather zones.
- Candlestick charts can be misleading, as they show extreme highs and lows, which can be just "knee-jerk" reactions of the market.
- Line charts are better for plotting support and resistance, as they only show the closing price.
- Plot support and resistance lines around areas where the price forms several peaks or valleys.
Understanding Support and Resistance Breakouts
- There is no definite answer to whether a support or resistance level is broken.
- Some argue that a support or resistance level is broken if the price can close past that level, but this is not always the case.
- Support and resistance can be "breached" but only temporarily, and may still be intact and even stronger afterwards.
- Thinking of support and resistance as "zones" rather than concrete numbers can help filter out false breakouts.
Learn about the basics of support and resistance in trading, including how to identify resistance levels and their significance in a bull market.
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