PSYCHOLOGICAL SUPPORT AND RESISTANCE

Understanding whether there is psychological support and resistance should not be
ignored because hedge funds and institutional investing creates recognizable patterns.
Ignoring psychological expressions in the markets increases the risks that the trades will
be going against the “smart” money. Psychological support reveals itself in several ways
and in many ways is a self-reinforcing process. For example, since traders assign importance
to key Fibonacci levels, this results in aggregating more significance to those
levels. A greater number of parked orders such as stops and limits become located in Fibonacci
zones. Option orders at key strike prices play a key role that the average trader
in spot has little accessible knowledge of. Additionally, prices at round numbers such as
1.2500 receive more attention from traders. Finally, psychological support emerges when
a key support or resistance level, such as a daily, weekly, or monthly high or low, is being
probed by the currency pair.
Up to this point, we have looked at price in relationship to support and resistance
lines and pivot points, but mapping price movement is not yet complete. The trader needs
to consider the dimension of time.




By ABE COFNAS