Support is simply a point in the market that does not allow the market to go BELOW that point.
As long as the support is intact - the market trades above that support line.
Valid Support
Valid suport is one that connects atleast two or more points in the market. Meaning a support line to be valid - the support point should have been tested atleast two times - the more times it is tested and held true - the stronger the support becomes.
Lay man's language
If the market hits 1.3500 (for EUR/USD pair) and moves UP on say Jan 1st - and then comes back to test 1.3500 on March 4th - only to go back UP again . Then 1.3500 is now a very valid support line.
In other words, a support is like a temporary bottom of the market - the only way the market moves after it hits its bottom is UP. Remember, we said "temporary" bottom.
Now, what happens if the market on July 11th, moves BELOW 1.3500? - the support has been breached - BUT, since this support was long held by the market - the same support line will most likely become a resistance line. (more on resistance in the next lesson)
|
Printer Friendly