Support and Resistance

Support and Resistance

In the field of technical analysis there are primarily three different methods which are often used in practice. One of these methods is called the Support/Resistance. This method is not only used in the field of Binary Options but also for the analysis of traditional options, stock quotes, currency exchange rates or in the field of Forex Trading. This method of analysis studies the price performance of the underlying for certain resistance and support points. These points should provide information how the price will behave after reaching this mark.

The Support Lines

After the price is reaching a support line there is a good chance that the price will not fall below this line. But how does such a line actually develop itself? Basically it is relatively easy to determine certain support levels: E.g. the chart analysts is looking at a chart over a period of one year. During this period the falling prices have often stopped at a certain level where they are not fallen further.

Such a scenario could e.g. be that the price of a stock has fallen within a few days or weeks e.g. from 55 euros to 49.20 euros. If the course is now not fallen despite a downward trend in the observed period several times further below the mark of 49.20 euros the chartist can "draw" at this point a support line. Should the price of the underlying now fall back to this level of 49,20 Euro in the future that would be a trading signal. If the price is not stopping at the support line that would be a trading signal, too because then it is likely that the downward trend will continue.

The Resistance Lines

The opposite of the support line are the resistance levels. At the resistance levels the price has problems to break through this line to the "top". A resistance line can e.g. represent a recent peak price which is until now never exceeded. If a rate achieve such a resistance line then it is more likely that the price will fall. The trading signal would be a clear "sell" signal. The trader of Binary Options would therefore speculate on falling prices of the underlying in this case.