Support and Resistance Levels

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

Support

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

Example:

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

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

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

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

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

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

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

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

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

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

Resistance

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

Example:

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

Once energies 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 area is tested the stronger the it is.

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

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

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

This shows that the demand to sell the energies at this region will be greater and therefore providing a good point to start a sell energies 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 energies trend is likely to reverse or consolidate at this level because once the buyers close their sell energies trades then momentum of the upward trend reduces and a consolidation will happen after which the direction is likely to reverse and start moving down.