Forex Technical Analysis

Forex Technical Analysis - Importance Of Trend Lines And Resistance Levels In Forex Technical Analysis:

Forex trend lines are important components used in chart analysis. Though the market goes in a direction which is present in zig zag lines, the placement of lower and upper portion of a zig zag allows us for plotting lines which connect the important lows also called troughs and the important highs also called peaks present in a corresponding zig zag by making use of software algorithms in a computer.
For drawing trendlines, 2 points will be necessary and 3rd will be confirmation of contact point. A trend chart must be drawn when using troughs with peaks. The trend line must be parallel and should be drawn in opposite side with trade channels. All the lines are the borders of the channel. These trendlines are very much essential for analysis of the current data of the forex market and they can provide the exact price variations which can help us to determine the right currency to invest.
The bottom and upper trade channel borders are called as resistance and support lines. Each of the peaks will represent the price levels that exceed the buying and selling pressure. They are also called resistance levels. The troughs represent different selling pressure levels and the buying pressure. The support levels and resistance level help in determining the correct price variation and time to sell the currencies. The consecutive resistance and support levels should exceed the other data in uptrend market. The reverse will be called as downtrend. Though smaller exceptions can be accepted, failures must be considered as the signals which warn for change in trends.
Trend significance will be varied with volume and time. The price if longer can bounce off the resistance and support levels, which is very important when the trend gets higher. The volume of forex trading is also equally significant, particularly when the resistance and support levels are critical. When level of currency bounces under certain volume, the trend significance can increase. The important of resistance and support level shall go beyond the actual functions.
If the levels get penetrated convincingly, there can be variation in opposite. A very good support level, which can be penetrated with heavy volume, shall become strong resistance level. But in other case, a very high resistance shall change into very high support once it gets penetrated. Generally the borders of trade channel which help in making decisions for saving or closing an already existing position must be based on certain rules. The first rule is that channel will be highly reliable if it exists for a longer time. When the channel is very reliable, the width will be high and steep channels will be less reliable. Support levels could be broken and are not dependent on volume level.