Support And Resistance
Basic Support and Resistance
Support and resistance levels are one of the most important technical factors when it comes to technical analysis. This is the basis for any trade that I take as it is with the wide majority of traders, though there are variations on this primary concept. These levels are key areas where price may come down in to, to find support if it will continue up or where price comes up to and resists at before going down. Support levels can be looked at as a floor where price holds at whereas resistance can be viewed as a ceiling where price comes in to and holds at.
When analysing charts on any time frame initially find several levels of resistance and of support. If there is no clear levels of resistance or support, go further back left on the chart to find previous Support and resistance.
Support and resistance can help with placing a stop loss and take profit if your opinion is biased towards a buy wait for the market to break the level of resistance and close above that level signaling it has been a clear break you could then place your protective stop loss 10-15 pips under then resistance which has now become support, your take profit could be place at the next level of resistance of 10-15 pips past it.
Price can only move in binary; in other words, up or down a support or resistance level. If you pick the right side, you will be profitable if you pick the wrong side you will make a loss.
An in important tip is that levels of support and resistance on the higher time frames are more reliable as it takes longer for these levels to form and thus breaking through them would similarly take longer.
It would then make sense to view a down trending market as walking down your staircase. Price will drop, then hit support before retracing up to fall again and give you another level of support. When a market is in a trend when it is either displaying lower highs and lower lows.
When trading using support and resistance in a bull market the aim is to buy once price has broken a resistance level and retested that level as support, and in a bear market the aim is to sell once price has broken a support and retest that level as resistance.
As seen in the picture below, price breaks through a resistance level before retesting that same level before continuing in the direction of the trend and order flow. These level are key because they give you areas where price is very likely turn around at or at least have a reaction off. Using these levels in conjunction with price patterns and market structure can give you the perspective you need to take a trade and feel comfortable doing so.
· Go through a pair of your choice and use the daily chart to mark out highs and lows, in particular highs and lows that act as support and resistance
· Study price action around these areas; is there a reaction off these levels, if so how extreme
· Journal your findings and revisit them at the end of the course