Support and resistance levels

[Gulfstream]

Support and resistance levels are one of the most common concepts in trading. Oddly enough, there are plenty of exercises how to build these levels.

At first, let's look at the basics.




Look at the diagram above. As can be seen this zigzag moves up (bull market). When the market moves up and then pulls back, the highest point reached before the rollback becomes the resistance.

As the market continues to move up, the lowest point reached before the reversal becomes a support level. Thus the support and resistance levels are being formed during the movement of the market and its kickbacks. All of the above mentioned is true for downward movement, but in mirror image.

[Gulfstream]

Building support and resistance levels

A very important thing to remember is that support and resistance levels are not exact values. It frequently seems that the level of support or resistance is broken, but it turns out later that the market just tested it. On the candlestick chart such "tests" of support and resistance are usually represented by candlesticks shadows.



Note the level of 2500 is being tested by the candlesticks shadows. Here the appearance of breakdown resistance is created. However, studying the chart, we see that the market has only tested this level.

[Gulfstream]

So how do you accurately determine whether there was a breakdown?

There is no a definite answer to this question. Some argue that the breakdown can be considered complete if the closing price crossed to exceed the level. However, you will see that this is not always true. Let's take our example above and see what happened after the price closed above the level of 2500.



In this case, the price twice closed above the resistance level of 2500, but then went down. If you believed that the breakdown was true and bought at breakthrough point, you would suffer substantial losses! Studying the chart it is visually noticeable that the breakdown was false, and the level of resistance was even stronger.

[Gulfstream]

To avoid following those false breakouts, the support and resistance levels must be represented as zones. To designate such areas it is wiser to use a line chart type instead of candles, as this chart is constructed on the basis of the closing levels, while the Japanese candles consider the additional maxima and minima. These highs and lows can be misleading, showing the movement of the market "by inertia". It is the same when a person does something unconsciously, and if he is asked about what he’s doing, he simply says: "Sorry, I'm doing it automatically."

When building support and resistance levels we do not need such interference. We need movements that have the strength to continue.

Studying the chart, we need to outline the support and resistance levels in places where prices have formed few peaks and hollows.

[Gulfstream]

Useful notes on the levels of support and resistance

1. At the moment when the market breaks the resistance level, that level becomes a support level.
2. The more often the market is testing the support or resistance level, unable to break it through, the stronger becomes the zone of resistance or support.

[mohamed reda]

using support and resistance is the most powerful way to make profits in my opinion but you must trading with the trends using this support and resistance levels to predict where the price will go also using the Fibonacci level will be so useful to know your entry points and your exit point.

[mark48]

thanks very much for sharing such a good and useful information about support and resistance levels which i was try to learn more and more and now i get much clear after your thread,it's help me very much to learn about support and resistance in very good way.

[amrmorasamir]

When I relying on the support and resistors realize big profits, especially on Frame as big as 4 hours and be trading method is the purchase or sale of when the strong points and the stop loss on Frame 4 hours is 30 points, just as if it was a frame daily the stop loss is 50 points up are not easily accessible and have a large target up to 200 points

[zintek]

Resistance and Support Level for Intraday Trading. When looking at a stock graph, support and resistance recognize areas of supply and demand. This is the most critical facet of trading.

[aur2120]

these are very good threads first of all its good strategy to buy at low and sell at high price with short term of trading becuase when curreny pair over sell then its give change to new trader and buy here if new trader set small target like 10 to 30 pipes with this trades he will earn hand some amount at the end of month