A Guide to Support and Resistance in Forex Trading

Round numbers

Round numbers are a common feature of support and resistance in the forex market. This is because the forex market price will likely have a challenge moving above a round number.

If you’re a beginner trader, don’t fall into the trap of taking a long or short position when the forex pair’s price is presenting as a round number, as this may not work in your favour.

Round numbers tend to create strong barriers to the forex price. Many banks and retail investors prefer to use round numbers, they also place those types of orders in large amounts, creating resistance in the forex market.

Moving averages

Moving averages (MAs) are delayed indicators, meaning they move slower than the forex market price. They would therefore be considered as historic data since they’d inform you on past trends instead of future ones. You’d use MAs if you’re a trend trader, since they’d inform you if the forex market were heading either upwards, downwards or sideways.

If you’re looking at a single MA, you’d focus on whether the price is above or below the delayed indicators. If the price is above the MA, it indicates an uptrend and if below, it’s likely a downtrend. You can also use the crossover between two MAs as a sign of the direction change in the forex pair’s price.

These usually present as two exponential moving averages (EMAs) where one is fast and another slow. As a trend trader, you’d take a long position when the fast EMA crosses the slow one from below. Alternatively, you’d take a short position when the fast EMA crosses the slow one from above.