Support and Resistance Levels

This is one of the most widely used concepts in commodities trading and it refers to levels on a commodity chart that tend to act as barriers that prevent the commodities price of an asset from getting pushed beyond a certain point in a particular direction.

Support

This level prevents the commodities price of an asset from getting pushed downwards and therefore it is regarded as the floor because it prevents the commodity market from moving downwards past a certain point.

Example:

On the commodity example illustrated and explained below you can see that commodities price moved down until it hit a support

Once commodities price hit this level it slightly bounced back up, then resumed going down until it hit support again.

This process of hitting a level & bouncing back is called testing the support.

The more times a support is tested and the commodity market bounces up the stronger it is - the commodity example illustrated and explained below this level was tested three times without breaking. Finally the commodity market commodity trend reversed and started moving in the opposite direction.

Once this level has been decided traders use it to place their commodity orders to buy the commodities at the same time putting a stop-loss a few pips below it.

In the commodity example above the commodity market did not move below this area. It is an area where commodities price cannot break lower.

These regions form good points where commodities price trend in a downward commodity trend is likely to reverse and get support and start moving upwards.

The demand to buy the commodities at this point will be greater & therefore providing a good point to start a buy commodity trade, while placing stops some pips just below.

This support is also use by short commodity sellers as a target where to set their take profit for their short sell commodities trades.

This is another reason why the commodity trend is likely to reverse or consolidate at this level because once the sellers close their sell commodities trades then momentum of the downward commodity trend reduces and a consolidation will happen after which the direction is likely to reverse.

Resistance

This level prevents the commodities price of an asset from getting pushed upwards these levels are therefore regarded as the ceiling because these levels prevent the commodity market from moving upwards

Example:

On the commodity example illustrated and explained below you can see that commodities price moved up until it hit a resistance.

Once commodities price hit this level it retraced slightly the resumed going up until it hit the resistance again.

The resistance holds and is tested five times without breaking.

More times a resistance level is tested the stronger the it is.

Once this level has been decided traders put their commodity orders to sell at this level & at the same time putting a stop loss a few pips above it.

In the commodity example above the commodity market did not move above this area. This region shows an area where commodities price cannot break above.

These levels form good points where a commodities price in an upward commodity trend is likely to reverse after some resistance and start moving downwards in the opposite direction.

This shows that the demand to sell the commodities at this region will be greater and therefore providing a good point to begin a sell commodity trade, while placing stops some pips just above this level.

This resistance level is also used by buyers as a target where to set their take profit orders for their bullish trades. T

His is another reason why the commodity trend is likely to reverse or consolidate at this level because once the buyers close their sell commodities trades then momentum of the upward commodity trend reduces and a consolidation will happen after which the direction is likely to reverse and start moving down.