What are the resistance, support, and gap in Forex trading?

Mohammed Abdelkhalik
November 14, 2020

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Article of forex trading education: What are the resistance, support and gap.

Support and resistance points and the gap are some of the most important tools of technical analysis that traders search for in the chart and they are one of the clearest things. Just a quick look at the chart of a currency you can learn the resistance, support, and gaps for this currency.

What are the points of resistance, support, and gap?

Resistance point:

The price that is difficult for the currency to rise above and this helps you in technical analysis of the currency.

The currency may begin to rise and its price increases continuously, but when it reaches a certain price it begins to decline again and then rises again, and when it reaches the same previous level it returns to decline, and so on several times and for several days, whenever the price of the currency rises and reaches this The price came back and fell again, and you notice that the currency face difficulting to exceed this price, such a price is called the resistance price, and it is the price that resists the currency from rising above it.

The point of resistance is the price at which the demand for a currency becomes less than the supply of it, and this does not mean that the price cannot rise above the point of resistance, rather it may exceed it, but before he does that he will have fallen from it several times, and the number of times the price could not If it exceeds the resistance point more, this means that this resistance point is stronger.

Example of resistance

Why is it important to discover a point of resistance?

When you know that when the price rises and reaches a certain price and then returns and falls, this means that when you see that the price of a currency has become close to a resistance point, you expect the price to return and then fall, so when the price reaches a resistance point, you will sell the currency at this price because you expect to decline if it falls. You will actually buy it again.

Support point:

It is the price below which a currency is difficult to fall.

The price of a currency may fall an hour after hour, but when the price reaches a certain point it returns and rises again and this is repeated several times. We call this point the support point, meaning it is the point that “supports” the price and prevents it from falling more than it, and it indicates that the currency is when it falls Until it reaches the support price, the demand for it increases by many people and they are willing to buy it at this price, and it does not mean that the price cannot fall below the support point, but rather that the price finds an obstacle to further decline when the price reaches the support point, and whenever the number of times is That the price could not fall below the support point, the stronger this means

Example of support

Why is finding support points important?

When the price falls and approaches a support point, it is more likely that it will rise again, so when the price of the currency reaches a support point, we can buy this currency because we expect that its price will rise after that.

The answer or the gap in Forex

Trading by relying on the gap or the gap is simple to buy and sell, but it also contains some risks, and basically, you should discover the gap in the price from the previous closing price and watch the first hour of transactions to distinguish the extent of the trade, as an increase above that range indicates buying and a drop below it indicates selling.

What is the gap?

A gap is a change in price levels between the closing price and the opening price on the next day or week, although most technical analysis evidence identifies four common types of the gap: Common, Breakaway, Continues, Exhaustion.

The difference between one type and another of the types of gaps can be distinguished only after the price starts to move up or down and the picture becomes clear, and these classifications are useful for understanding the market over the longer-term.

The four main types of gab:

– Gap Up:

It occurs when the price opens above the previous day’s high

– Gap Down:

It occurs when the price opens below the previous day’s low

– Practical Gap Up

It occurs when today’s opening price is higher than yesterday’s closing price but not higher than the previous day’s high

– Practical Gap Down

It occurs when today’s opening price is lower than yesterday’s closing price but not lower than the previous day’s low.

How do you deal with price gaps?

In principle, I do not recommend online trading on price gaps, as there are some technical methods to deal with price gaps, but it will often lead to the loss of your account by reaching the margin call, especially if the size of your income is large, so it is better to stay away from trading in this way.

If you are a day-to-day trader or from the short-term category (you still have open positions for the following week), I advise you to make sure to look at your trades with importance before the end of the week by watching the important economic data for the following week as it is likely that the next week will carry market-moving data.

A strong reversal of your entry and thus reflects on you the market and it is preferable to liquidate all your contracts on Friday every week. As for medium-term traders, they must take into account a good stop loss commensurate with the answers expected during the following week as a result of the economic data during the holiday, the market may move significantly during the holiday and therefore you will find a big difference between the closing price.

Author Mohammed Abdelkhalik

Professional Trader and Analyst, economist in Financial and Forex market since 2004.holds an MBA from the American University in Egypt. Mohammed works as an economic writer and technical & fundamental analyst for many international Forex and financial trading companies in both English and Arabic on a daily basis.