What is Dynamic Support and Resistance Levels & Zones in Forex
Dynamic supports and resistances play a crucial role in technical analysis.
Unlike classic supports and resistances, these zones change and adapt to a market price action in real time.
Learn what is dynamic support and resistance in Forex, Gold trading and how to find it easily.
Discover its main types and real market examples.
Let's start with the basics.
There are 2 major types of supports and resistances in technical analysis.
The first type is called static .
Such supports and resistances are fixed and don't change with time.
It should be strictly horizontal key levels or the zones.
Market price action and momentum beyond them do not affect these supports and resistances.
In the example above, you can find static supports and resistances on Gold. The market may return to one of those levels or the zones today, tomorrow or in a month, but it will not move.
In comparison to static supports and resistances, the dynamic ones shift with time. They constantly change and adjust as the time flies.
One of the obvious types of dynamic supports and resistances is a trend line.
Above is the example of a dynamic rising support based on trend line.
As the time goes, a support shifts and becomes higher and higher.
I found a great example of a dynamic resistance on Dollar Index.
Depending on the moment when the price tests that, the resistance will be on different levels.
The later the price tests the trend line, the lower is the resistance.
When newbie traders learn dynamic supports and resistances, they usually stop on trend lines.
But it is just a beginning.
Really significant dynamic supports are resistances will be the zones .
The areas based on static horizontal supports and resistances and trend lines.
Examine a price action on GBPCHF forex pair.
We have a static horizontal support area and a dynamic rising trend line.
Two supports intersect, composing a contracting dynamic support zone.
With time, it will become narrower, accumulating buy orders within.
On NZDCAD forex pair, I underlined a contracting dynamic resistance zone that is based on an intersection of a static horizontal resistance area and a falling trend line.
Selling orders will be distributed within.
The 2 dynamic support and resistance zones that we discussed are narrowing , but that is not always the case.
A dynamic support zone that I found on GBPNZD is expanding and broaden with time.
It is based on a dynamic falling trend line and a static horizontal support.
With time its boundaries will be wider and a bullish reaction may initiate from any level within that.
A dynamic resistance area that I spotted on EURCAD forex pair is a great example of an expanding resistance.
It is based on a static horizontal resistance and a rising trend line.
We can easily recognize how it grows with time.
Of course, another types of dynamic supports and resistances exist. But they are more nuanced and rare.
As soon as you learn to recognize the clusters that we discussed in this article, you will be able to recognize the less obvious ones as well.
Next time, when you execute a support and resistance analysis, try to find a dynamic zone. You can find it on any time frame, and forex pair and gold, and it will completely change your perspective on the market.
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