Page 9 - Module 5 - Key_Players_in_the_financial_game

Module 5 – Understanding the game between the bulls and bears

The logic behind understanding support and resistance and highs and lows is that most traders place
their protective loss stop orders at the latest highs and lows. Orders build at these highs and lows.
Think about it! When you are chasing the market, you are constantly moving your stop to the last
high or low locking in profit as prices rise and fall. Right? Well, so is everyone else. Resistance
(sequential highs on the chart reading from right to left) is where there are more orders to sell than
buy orders. Support (sequential lows on the chart reading from right to left) is where there are more
buy orders than sell orders.

what is resistance?
On a chart, a resistance level is an identified maximum level where the supply has exceeded the
demand, stopping the upward momentum in the exchange rate, and eventually making it drop from
there. Supply is synonymous with bearish, bears and selling. If the market believes that a price level
is very high, sales soar at the time price reaches that value. In other words, a resistance level is a
reference price where selling pressure is greater than the demand. In many cases this pressure is so
great it can halt the rapid escalation of prices. The levels of support and resistance are detected
primarily by analysing the evolution of price action on a chart and identifying where prices halted
after a rising or falling period.

Resistance thus is the price level at which selling pressure is expected to be strong enough to prevent

the price from rising further. The logic dictates that as the price rises towards resistance, sellers
become more inclined to sell and buyers become less inclined to buy. When the price reaches the
resistance level, it is believed that supply will overcome demand and prevent the price from rising
above it. There are different ways to visualize price action. Important for you to know is that all price
actions as you see on the charts are derived from market participants buying and selling currencies.
Despite the fact there are several ways to capture price action on a chart, we make use of Japanese
candlesticks throughout the course.
Remember the financial game? Envision in your mind at each level of support or resistance a line of
strong, mean, big, ferocious, football players trying to hold the line. They try not to allow the
opposing team to break through. The more a Bear hits the line of support and cannot break through
it the stronger the line of support. The opposite is true when Bulls hit levels of resistance

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