Support and resistance levels are key concepts in technical analysis used by traders to predict possible market movements. They indicate areas on a chart where the price is likely to encounter a barrier and either reverse or break through it.
A support level is the price at which the demand for an asset is strong enough to prevent further decline. When the price falls and reaches the support level, it may bounce upward as buyers start to dominate the market. The support level can also become a new entry point for a buy trade.
A resistance level is the price at which the supply of an asset becomes strong enough to halt further growth. When the price reaches the resistance level, it may bounce downward as sellers begin to dominate. The resistance level is often a point where traders sell the asset, expecting a correction.
The overlapping segment (or "Overlapping segment") occurs when a support or resistance level lacks a clear boundary, and the price crosses several levels consecutively, creating zones of uncertainty. In such situations, it is essential to monitor volatility and potential trends, as sharp fluctuations may lead to unexpected movements.
Overlapping can also indicate a "consolidation zone," where the price oscillates between support and resistance levels until it gains momentum to break in one direction.
In the Forex market, support and resistance levels are used to identify potential entry and exit points for trades. Traders often combine these levels with other indicators, such as oscillators or moving averages, to increase the likelihood of success.
It is important to understand that support and resistance levels are not absolute and may change depending on market conditions. Support can become resistance and vice versa when a level is broken by the price.
For successful Forex trading, it is crucial to regularly review charts and track how the price interacts with key levels.