Support & Resistance Levels

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

Support

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

Example:

On the oil example shown below you can see that crude crude oil price moved down until it hit a support

Once crude crude oil 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 & bouncing back is called testing the support.

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

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

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

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

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

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

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

Resistance

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

Example:

On the oil example shown below you can see that crude crude oil price moved up until it hit a resistance.

Once crude crude oil 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.

The more times a resistance is tested the stronger the it is.

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

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

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

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

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

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