Resistance is described as the upper level of the currency price where the trend going up is going to stop and reverse.
As the prices continue going up, consequently more people buy than sell. This is the exact time for the “bulls” to take their profit. At the same time, the “bears” are willing to wait for catching the opportunity to enter short. The higher the prices go, the more possible that the “bears” will enter short. At the point when the sellers dominate over the buyers, level of resistance formulates.
The function of resistance is to stop the price advancement, while support prevents price degrading below the support level. If the price breaks the resistance level, it can be expected to reach the next resistance level, in the mean time the first resistance level serves as a support for the newly formed resistance.
As a fundamental part of technical analysis, the behavior of the resistance and support are calculated based on the data collected from how they behaved in specific situations and taking into deep consideration, the broad tendencies of their behavior.
Much like the support, resistance also is presented in sloped or horizontal lines, depending on direction of the price movement dominating at that particular period.
- When the trendline connects the highs in the downward trend, this is the resistance with negative slope.
- The upper trendline forms horizontal resistance in a sideways trend
- In technical indicator analysis and graphical price pattern analysis the concept of the resistance has a big usage. The notion of resistance is widely used in graphical price pattern analysis and technical indicator analysis.
- On the whole when the price reaches the resistance level, it is the most attractive asset for the investors, and most of the investors are willing to act upon when the currency price approaches its resistance level, to get the highest possible profit.
- When the price breaks through the resistance level, in some cases it can continue growing, thus making the previous resistance level a support level, which on its turn should hold the price declines.