What is a horizontal line, and is it different from support and resistance? You may ask the main difference is that support and resistance are areas, while a horizontal line is considered just a line. Confused? That’s what we will be covering in this article.
What Is A Horizontal Line Used For In Forex?
A horizontal line is drawn on the chart with the aim of marking areas of support and resistance. This is a line where the y-axis value is equal. For a horizontal resistance line, we draw it by connecting similar swings and lows in price. As for the horizontal support line, we draw the line connecting similar swing highs.
So how are they relevant? What happens when the price in the market moves below/ breaks below the horizontal support line? This means that they will go down further. However, if the support holds the price and the market bounces on top of it/ breaks above, then it means that the price will continue upwards.
The same concept applies to horizontal resistance lines. When the market crosses it, then it means that the price will continue to go higher and higher. If, however, the price bounces off the resistance line, then it will go back down following the initial trend.
Horizontal Line And Support And Resistance Level Relation
If the price is moving up and down around the SR level, then that is referred to as being “range-bound. You will hear other traders say “the market is ranging.” It is important to remember that in forex, the market comes to you, not the other way around.
If the market ranges, we wait for the market to come to us, meaning that we are waiting for a big move. During a range, the market is “constricting,” so we expect that it will “break out” of this constriction.
NB: If the market moves past the SR level, then it will change its trend. However, if it bounces on this level and closes below it then it will continue with the initial trend.
As simple as it is to draw them, they provide a lot of valuable information. For instance, we say that a market is in an uptrend when it makes higher swing highs and higher swing lows.
When you draw them connecting these highs, it will give you a point when the market wants to give you a new high as it will want to retest this line again.
Differences Between A Horizontal Line And A Trend Line
While both are just lines drawn on the chart, the horizontal line is specifically horizontal while a trend line is typically angled according to the swing lows during a price uptrend or drawn along the swing highs in the case of a downtrend.
It is however important to be careful when trading with horizontal lines. For instance, when you draw a horizontal line at highly important prices, the price may range around that area due to confusion in the market or some losing trades thus making this area quite unpredictable to make a move.
A wise trader will wait for the market to make a decision on where it is headed confirming with other tools too.
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