Winning Support and Resistance Strategy
Support and Resistance
Support & Resistance lines - make or break price points
Support and resistance lines conform the most basic analytical tools and are commonly used as visual markers to trace the levels where the price found a temporary barrier. In other words, where price had trouble crossing.
From a strategic point of view, support and resistance levels represent smart places to anticipate a reaction in the price of an asset, and therefore represent a basic tool in technical analysis.
Numerous traders use them, but the
diversity in application and integration tell us that charting is definitely not an exact science and more of an art.
One of the most common mistakes that new traders make is buying too close to a line of resistance or selling too close to a line of support. In this page we provide enough set-ups and real-time examples, to make sure you thoroughly understand this simple yet important dynamic.
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Support and Resistance Levels
Price zones
Don't be disappointed if S&R lines haven't worked for you until now. You see, in reality, support and resistance are price zones, not exact numbers. This is clearly visible when switching from a higher timeframe to a lower one: an horizontal line on a weekly chart can perfectly be made by an horizontal price channel on a one hour chart.
This is why it often what appears to be a break of a support or resistance level is just the market testing it. These 'tests' of support and resistance are usually represented by the candlestick shadows piercing the S&R
levels.
If the market were made by S&R lines and not by people, then the exchange rate would always rise and fall to the same exact price points, over and over again.
But because that rarely happens it's important to think of support and resistance as zones on the chart where people buy and sell.
One way to induce the habit to treat S&R lines as zones is drawing them with fat lines, avoiding a fine-point trace. That way you won't fool yourself into believing you have identified the exact price at which a currency pair is going to turn around and start moving in the opposite direction. And even better: draw the lines, especially the horizontal ones using two lines, an upper and a lower one, or use rectangles to mark the zones. Your chart platform has all these fancy tools for sure.
Identifying Supply and Demand
There where the difference between the number of buyers and sellers get more remarkable, it tends to form a Support or Resistance level. Your next logical quest will be to identify them on a price chart.
Historical and potential levels, can
lead to several constructs: horizontal lines and dynamic trendlines are the most used ones and can be based on significant highs and lows. Lines are also used to delineate price channels as well as classical chart
figures such as triangles and wedges.
Some technical indicators can act as potential levels, such as sentiment chart, moving averages, Pivot Points and
Fibonacci cycles which are commonly used in Elliott Wave analysis.
Round numbers - those quotes ending in 00 or 50- and emotional spikes are often perceived as Support and Resistance levels.
When these levels encompass a larger area on the charts technicians speak of a Support and Resistance Zone.
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Editors' picks
AUD/USD posts modest gains above 0.6600, investors await fresh catalysts
The AUD/USD pair posts modest gains around 0.6605 during the early Asian session on Monday. Investors await the key US economic data this week for fresh catalysts, including the Consumer Price Index, Producer Price Index, and Retail Sales.
EUR/USD trades with a bearish bias above 1.0750 ahead of US economic data
EUR/USD trades on a softer note around 1.0770 during the Asian trading hours on Monday. Investors turn to cautious mode and prefer to wait on the sidelines ahead of the US key economic data this week.
Gold extends the rally near $2,360 amid geopolitical risks
Gold price extends its upside near $2,360 on Monday during the early Asian trading hours. The rising geopolitical tensions in the Middle East boost safe-haven flows and benefit precious metals.
Could Worldcoin price shoot up 45% ahead of OpenAI’s live stream on Monday?
Worldcoin price has formed a double bottom around a key support level, suggesting a potential accumulation. If the OpenAI’s Monday live stream has a positive impact on Artificial Intelligence field, it could positively impact WLD and other AI-based tokens.
Week ahead: US inflation numbers to shake Fed rate cut bets
Fed rate-cut speculators rest hopes on US inflation data. After dovish BoE, pound traders turn to UK job numbers. Will a strong labor market convince the RBA to hike? More Chinese data on tap amid signs of slow Q2 start.
