It can be very hard for a forex trader to decide in what security to invest without prior analysis. Various tools are used for this type of analysis in forex trading. The main purpose of using all these tools is not to predict the future with your analysis. Rather, they are used and analysis is done to improve your ability to make accurate forecasts more often.
Forces at Work
While conducting any such analysis we find some economic forces at work, but it doesn’t imply that technical indicators work on the same line as economic laws and forces. An increase in the price of an asset is not due to the increasing demand of the market, price changes due to the investors demand.
Some huge investors do it intentionally to create a false hike in the prices in order to attract new traders to buy these assets and ultimately make the investors profitable. Commonly used forex tools and analysis methods aid traders in avoiding any such fraudulent (such as a false hike in prices). One of the tools used to forecast the dominant price trend is forex support.
Bullish and Bearish Forex Traders
We often hear analysts talking about the market trend and mentioning the market trend as bullish or bearish. What exactly does it mean? A bullish market is one where prices are going higher and market sentiment is in good condition. Bearish markets are exactly opposite when compared to bullish markets, as general sentiment is negative.
If you find prices are going downwards, recession is prevailing, and the economy is deteriorating, understand that this is bearish market. Forex support is used to analyze the limits of a bearish market. With this we can say that support is the lowest price of a particular asset or the price which buyers of the asset as consider the lowest worthwhile price for the currency being traded.
The word support is used here because when the prices of the prices are falling, at one point it stops falling and moves back upward so in some sense the price is “supported” and does not fall further. The price point where it goes back upward is support as markets didn’t allow the price to fall any further.