If you carefully scrutinise the stories of successful traders, you will come to the conclusion that their method of predicting price movements is mostly related to support and resistance levels. Knowledge of this technical aspect helps an investor understand when to enter and exit trades.

Using the support and resistance levels is a reliable strategy for everyday use. In this article, we will go through the basic recommendations of working with them and will also consider a number of interesting examples from the past.

What are the support and resistance levels?

These are special price targets or ranges that have already proved to be a useful instrument in the past. As a rule, a trend reversal occurs close to these values.

A great advantage of support and resistance levels is that they can be found right on the chart without any complex calculations.

The example below clearly shows us three types of levels. Let’s analyse each of them.

(Olymp Trade)

Past data on the chart suggests that a trend reversal has repeatedly occurred around the value of 0.85000 of the EUR/GBP pair. That is, an uptrend tended to change its direction in the same proportion. This level can certainly be called a support one.

At the same time, traders could go long from the resistance level, which was set at 0.86770. The asset price began to decline at least three times after reaching this level.

But we can most often find the trend levels presented as inclined lines. The chart readily resumes its movement with the trend from these values. On the same example, we can see the quotes moving up after several slight declines.

It turns out that knowledge of the levels helps one select the right zones to trade a reversal or a continuation of the trend.

How to set the levels on the chart?

To start working, you will need a trading platform where you can access a large number of asset charts. The more currency pairs, metals and other financial instruments you analyse; the more unique trading ideas you get.

Olymp Trade is a convenient web terminal. After a quick registration, you will be able to access more than 70 assets - from stock indexes to cryptocurrency. Besides, it has such support tools as horizontal and trend lines.

To set a support or resistance level, you must select the ‘horizontal line’ from the list of support tools, and find a situation when the chart reversed from the same price level at least twice.

If you find this example on the chart, you will just have to add a horizontal line at this level. When the price approaches it next time, you will know what to expect.

For example, if you have found a resistance level near 1.13000 on the EUR/USD chart, you should open a short trade in the forex mode of the platform or open a short option trade when the price approaches it next time. The Olymp Trade customers access a wide range of investment tools.

(Olymp Trade)

An upward trend line is constructed using the limits of the ranges of declines (see Screenshot One). As we can see, despite a steady increase in price, sometimes it rolls back. A line should be constructed using the lower values of these rollbacks.

Why do the levels work?

If you have some experience in trading in financial markets, you have probably thought about how great it would be to read the other traders’ minds. Thanks to the levels, you can get one step closer towards achieving this goal.

This analysis tool is used by major investors - banks, hedge funds, etc. They monitor the levels, and protect them in order to ensure the market stability or competitive prices.

What is more, many traders are aware of the levels, because they present a basis for technical analysis. Therefore, if you come across a level—do not ignore it. Seize the moment and make a trade to gain profit!

Where can I learn more about the levels?

The Olymp Trade experts regularly hold training events. You can find videos of these events in the Education section of the platform. A webinar on the basics of trading the levels is also available to everyone.

Besides, you can enhance your knowledge without the risk of losing your own funds. To do it, use demo units of a demo account.

Disclaimer: This is a release by Olymp Trade and the liability solely rests with the said company. No HT Group journalist is involved in the creation of this content.