Support Resistance Trading

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Pre-Requisites To Support Resistance Trading
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Pre-Requisites To Support Resistance Trading
Support Resistance Trading is most often used by
traders. As traders will plot charts with
trendlines and key horizontal levels to mark the
support and resistance levels, this will only
constitute half of the battle to more profits
the other half requires the trader to be able to
trade these levels.
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Every Trader Has His Own Support Resistance
Trading System
Somehow, each trader has his own way of
identifying key support and resistance levels and
there are some who do not even know how to plot.
The next few points will highlight what are
support and resistance levels so that a trader is
able to plot and use them effectively without
compromising the quality of his trading
performance for his support resistance trading
strategy. Therefore it serves as a foundation to
support resistance trading.
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Key Foundations to a Good Support Resistance
Trading System
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1. Using Trend Lines
Trend lines in support resistance trading are
used to depict the direction of price on a chart.
These trendlines are often used to enter trades
whenever the market touches or breaks through
them. As trendlines drawn are subjective in
nature, there is a possibility that the price can
choose not to respect the support or resistance
line a trader has plotted. It should only be
used as a guide to determine a traders trade
intention of a buy, sell or stand aside base on
the trend. Generally accepted practice to draw
a trend line in support resistance trading is by
connecting three or more consecutive lows
increasing in price for uptrend or consecutive
highs decreasing in price for downtrend.
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2. Drawing Support
Support line is drawn across consecutive candle
lows which indicate an area where buyers and
sellers are balanced, therefore price unable to
go lower. This level serves as a spring board to
push price higher, suitable for buy entry.
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3. Drawing Resistance
Resistance line is drawn across consecutive
candle highs which indicate an area where sellers
and buyers are balanced, therefore price unable
to go higher. This level serves as a spring board
to push price lower, suitable for sell
entry. Note that support and resistance levels
can often swap roles whenever price breaks
through them. This is when price breaks through a
support it will serve as a resistance level as
the market will want to test this level before
proceeding to fall further. The same also goes
for resistance level becoming a support level.
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4. Use Round Numbers
Round numbers are excellent to be used as
potential support and resistance levels as it
represents the psychological factor in supply and
demand. Traders are humans with tendencies to
prefer round numbers for entry or exits as it is
easy to remember and calculate profits.
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5. Use Daily Ranges
Daily high and low of every trading day
represents key support and resistance levels for
support resistance trading. Often, the market
will want to test these levels. The validity of
these daily levels can only be taken for the last
two to three days as support and resistance
levels.
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6. Use Long Term Support and Resistance for
Support Resistance Trading
Look out for resistance and support levels from
longer timeframes as the validity of price
respecting these values are often strong. Moving
to shorter timeframes, the validity will decrease
but these are the levels where a trader can hunt
for bargains and make their move.
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Support Resistance Trading Conclusion
The above six point gives an idea to the trader
on how to start plotting key support and
resistance levels as a foundation to trade
analysis and trade entries for support resistance
trading. This will eventually boost a traders
confidence and trading performance.
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