by What is Support and Resistance ?
Support and resistance levels are nothing it’s just a previous swing in the chart that could be found very easily.
Just you need to see the previous swing from where the price started to change the direction then you can mark that as support and resistance levels. It is one of the foremost widely used concepts in trading.
Strangely enough, everyone seems to own their own idea of how you ought to measure support and resistance.
Different time frames can have different support and resistance levels. In shorter time frames we can consider the nearest swing as support and resistance for day trading and for swing trading, we can consider daily time frames support and resistance levels.
Let’s take a glance at the fundamentals first. Look at the diagram above. As you’ll be able to see, this zigzag pattern is making its high (a “bull market”).
When the worth moves up so pull back, the very best point reached before it pulled back is now resistance. Resistance levels indicate where there’ll be a surplus of sellers.
When the worth continues up again, the all-time low point reached before it started back is now support. Support levels indicate where there’ll be a surplus of buyers.
In this way, resistance and support are continually formed because the price moves up and down over time. The reverse is true during a downtrend.
In the most elementary way, this can be how support and resistance are normally traded: Trade the “Bounce”
When the value falls towards support place a buy order. When the value rises towards resistance place a sell order. Trade the “Break”.
When the worth breaks up through resistance place a buy order. When the worth breaks down through support place a sell order.
A “bounce” and “break”? Say what? If you’re a bit confused, no have to worry as we are going to cover these concepts in additional detail later.
How To Find Support And Resistance Levels
One thing to recollect is that support and resistance levels aren’t exact numbers.
Often times you’ll see a support or resistance level that appears broken, but soon after understand that the market was just testing it.
With candlestick patterns, these “tests” of support and resistance are usually represented by the candlestick shadows.
Notice how the shadows of the candles tested the 15k resistance which previously act as support.
At those times it sounded like the price was “breaking” support. In hindsight, we will see that the price was merely testing that level.
How can we know whether support and resistance were broken?
There is no definite answer to the present question. Some argue that a support or resistance level is broken if the value can actually close past that level. However, you’ll find that this is often not always the case.
How To Trade Support And Resistance with Example
Let’s take our same example from above and see what happened when the value actually closed past the levels.
In this case, the value had closed below the levels but ended up rising duplicate above it.
If you had believed that this was a true breakout and sold this pair, you would’ve been seriously hurting
Looking at the chart now, you’ll visually see and are available to the conclusion that the support wasn’t actually broken; it’s still much intact and now even stronger.
Support was “breached” but only temporarily.
To help you separate out these false breakouts, you ought to think about support and resistance more as “zones” instead of concrete numbers.
One way to assist you to discover these zones is to plot support and resistance on a line chart instead of a candlestick chart.
The reason is that line charts only show you the terms while candlesticks add extreme highs and lows to the image.
These highs and lows may be misleading because oftentimes they’re just the “knee-jerk” reactions of the market.
It’s like when someone is doing something really strange, but when asked about it, he or she simply replies, “Sorry, it’s just a reflex.”
When plotting support and resistance, you don’t want the reflexes of the share market. you merely want to plot its intentional movements.
Looking at the road chart, you would like to plot your support and resistance lines around areas where you’ll see the value forming several peaks or valleys.
Interesting facts about support and resistance:
When the value passes through resistance, that resistance could potentially become support.
The more often price tests tier of resistance or support without breaking it, the stronger the realm of resistance or support is.
When a support or resistance level breaks, the strength of the follow-through move depends on how strongly the broken support or resistance had been holding.
For better accuracy, you can also merge support and resistance with price action trading which will provide you better results.
With a touch practice, you’ll be ready to spot potential Stocks support and resistance areas easily.
In the next lesson, we’ll teach you how trend lines works in swing trading and day trading.
Conclusion
Support and Resistance Levels are usually the best trading patterns to take the trade. This setup is very easy and simple to use just you need to keep patience and let your setup form and then you can enter your positions.
Stoploss should be the low of the candles and the target would be as per your risk-reward ratio. One should follow the Risk Management, Money Management, and Fear and Greed concept of the market to avoid big losses.
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