✅ Lesson 2.2 – Understanding Price Movement

Learn how to evaluate support and resistance (S/R) strength and anticipate price action.

🧭 What Moves Price in Forex?

Price in the Forex market moves based on supply and demand, but where price stops, reverses, or breaks through is often determined by support and resistance (S/R) levels.

📌 What is Support and Resistance (S/R)?

• Support is a price level below the current price, where buying interest may prevent the price from falling further.

• Resistance is a level above the current price, where selling interest may stop further upward movement.

• If price breaks above resistance or below support and holds, it often continues to the next S/R level.

📊 How to Measure S/R Strength – Use the IRATE Method

The IRATE acronym helps you evaluate the reliability of an S/R level. The more IRATE factors present, the stronger the S/R.

🔍 I – Indicators

• How many technical indicators align at the level?

• Converging indicators (e.g., moving averages, trend lines, Fibonacci levels) increase the strength of the level.

🔢 R – Round Numbers

• Round numbers act as psychological barriers.

• Levels like 1.3000 are seen as more meaningful than 1.2982.

• Human psychology and trader behavior often respect these levels.

🕰️ A – Age

• The older the level, the more significant it becomes.

• A level tested months ago can be more meaningful than one seen just last week.

🔁 T – Tested

• The more times a level is tested but not broken, the more reliable it becomes.

• Repeated rejections from the same level confirm its strength.

📘 Example: Using IRATE on EUR/USD

Let’s say the EUR/USD is hovering near 1.3775. That level is:

• A round number (R)

• Aligned with a Fibonacci retracement (I)

• Has been tested multiple times without breaking (T)

• Present in historical data for months (A)

✅ This confluence means it’s a strong resistance level.

🧠 Why Context Matters

The same candlestick pattern can mean very different things depending on where it appears:

• Is it happening at a key S/R level?

• Is it within a strong trend or at the end of one?

• Are there swing highs/lows nearby?

Candlestick signals are more powerful when combined with S/R analysis.

🔄 Key Candlestick Patterns in Context

✅ Hammer

• Forms after a downtrend

• Long lower wick, small body

• Suggests buyers rejected lower prices

⚖️ Doji

• Open and close prices nearly the same

• Long wicks suggest indecision

• A warning of potential reversal or consolidation

🧾 Lesson Summary

• Support and resistance are key reference points for predicting price reactions.

• Use IRATE (Indicators, Round Numbers, Age, Tested) to judge strength.

• Combine candlestick analysis with S/R zones to improve trade accuracy.

• Strong S/R levels often act as price turning points or breakout zones.

📘 In the next lesson, we’ll dive deeper into how to apply S/R zones with trend analysis for high-probability trades.