A major part of Forex technical analysis is to identify support and resistance levels and identify trends. This is done in a variety of ways. Perhaps the most common methods are the use of Fibonacci retracement lines and trend lines. The way to draw a Fibonacci retracement is to identify the top and bottom of a range then draw it. Most chart software will draw retracements at 23.6%, 38.2%, 50%, 61.8%, 78.6% and 100%. Traders often place their stops and take profit orders at these levels so the market will very often “bounce” at them. You can see on the chart above, price bounced at the 23.6% fib and 38.2% fib.

Trend lines are useful for identifying trends and possible support and resistance points. When drawing them, they must link to at least two prices. You can see on the chart above the trend lines would originally linked to just two points, but as the trend line continued to move up with price, it bounced on the trend line twice before breaking it. It would appear that many traders had buy orders at those points.