Support and resistance acts as a barrier from preventing the price of an asset from getting pushed in a certain direction. It is one of the more difficult concepts within Technical Analysis, there are various ways to identify these price levels, and even after identified, there are plenty of ways of integrating and trading with them.
Today I'm going to simplify it for all of the beginners on the platform (please remember to read the note provided).
What is support? Support is the price level at which buying is thought to be strong enough to prevent the price from declining further.
What is resistance? Resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further.
The most common way to trade it is breakouts, this is when you buy or sell whenever price passes through a support or resistance level. As you may know support and resistance levels won't hold forever even though they can hold for a long time but the reality is... Eventually they will break and as a result of a breakout the moves can be really powerful. However there are some implications with this, many traders get in too quick.
You may be thinking what should I be waiting for? Validation. As a key pointer wait until the candlestick has closed above resistance or below support until entering the trade, this way it will validate the price move up or down.
hi guy, I always have to ask "why". I'm a big believer in S/R but I always have to ask traders "Why". Why does old support become new resistance and why does old resistance become new support? What's going on at these levels that actually causes this to occur?
good post
thanks
LewisGlasgow
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@JamesPowell, Hey James, I tend not to focus on the "why" as it is a lifelong debate. Many investors believe it is a self-fulfilling prophecy, support and resistance is no more than a psychological barrier rather than a physical barrier. It is the main reason why I have linked in the 14 stages of investor emotions, understanding investor psychology is extremely beneficial to anyone's trading.
Technical traders use it as visual orientations to see where price will bounce or break... They also use it to place take profit, stop loss or entry levels.
JamesPowell
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As to methods there may be a million and then some, but principles are few. The man who grasps principles can successfully select his own methods. The man who tries methods, ignoring principles, is sure to have trouble.” –Ralph Waldo Emerson
your psychology post is a good one as well.
If its true that 90% of traders fail at trading then its reasonable that 90% of the traders as you say "Technical traders use it as visual orientations to see where price will bounce or break... They also use it to place take profit, stop loss or entry levels." loose as well.
Nothing is as simple as it seems on the surface. There are probably hundreds of books and dozens of trading methods based on S/R alone. Yet they too fail.
Perhaps the "why" matters more than we originally thought and maybe we should first understand they why before we undertake the where.
in the spirit of discussion of course.
excellent post. Keep it up.
thanks
LewisGlasgow
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@JamesPowell, I'm loving the quote, I must say that's extremely insightful.
Thank you for all of the feedback and of course your contribution to my post, I'm sure everyone on here will appreciate you sharing additional knowledge on the subject. You have gained yourself a new subscriber on YouTube :)
JamesPowell
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@lewglasgow, I'm chuckling to myself, I didn't realize you are an educator when I posted. I hope you see the humor in it as well.
There is a very real and simply "why" answer though. I ask everyone. Never found a logical answer. But there is one. Its found in understanding more how exchanges and large institutions work though. Thanks for the like.
Elliott_Moore
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you should post something like this each day for beginners. They would love it.
LewisGlasgow
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@Elliott Moore, Thanks for the feedback, I plan to provide more educational content going forward.
Caskox
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Great, thank you for sharing, sure this helps. :)
LewisGlasgow
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@Caskox, I'm glad I could help :) thank you for commenting.
good post
thanks