Support and Resistance
If you've researched trading for awhile now you'd of seen plenty of topics on support and resistance trading, there are many articles out there that will show you how to look for support and resistance and what it stands for. In this article I'd like to explain myself in simple terms what support and resistance is, and how you can benefit from is as a trader.
Lets first start by defining resistance and what is is. In simple terms, resistance is what stops price from pushing higher and a well respected resistance level can last weeks, months or even years. They're good for looking at turning points in the market that is trending up to possibly reversing and turning bearish (going down).
Take a look at this example in the image below. The green zone highlights where the resistance is and the red zone highlights the market failing to go higher (resisting) and eventually pushing lower.
Most traders will use resistance to look for selling opportunities when they arise and line up with a few other entry criteria. Resistance is a great tool to use to help identify possible selling zones.
Support is the exact opposite of resistance, support will stop price from going lower and we usually expect a bullish market (buyers) to come in when price reaches a supportive level. Again, support is a great tool to see when a market will go from being bearish to possibly turning bullish.
TIP: Support and resistance do break often, they aren't guaranteed to work 100% of the time. Use them in conjunction with other trading rules. Don't forget to watch a video on support and resistance here.
Take a look at this example below. You can clearly see by the green zone that price has failed to push lower each time it came within this zone. Once price reaches a support level, traders tend to look for buying opportunities. The red box represents a great opportunity to get in at this level, in hindsight we can say we'd buy this and it was a profitable trade however during the time of the live market when all we saw was this one candlestick that is highlighted by the red box, we took this based on a few other factors, support being one of the reasons we entered.
Using support and resistance is a great way to look for trades, here is an example of how a trader could trade using just support and resistance. As you can see from the image the yellow zone highlights resistance and support while the green box highlights when the market turned from a bullish to a bearish or bearish to a bullish environment.
When price reaches the resistance, a trader will be waiting for some sort of candlestick confirmation such as dojis, dragonfly, shooting star, pinbars, smashbars etc.. (We'll do another topic on candlesticks later.)
Once the trader identifies their reason to enter at resistance, they'll look to short the market (sell) to the next level of support, once price reaches the support they'll again wait for an trigger candle (mentioned above) to look for a long (buy) back to the level of resistance. Many traders do this successfully, some traders like to only trade support in the direction of an uptrend while ignoring resistance and vice versa for only trading resistance in the direction of a downtrend while ignoring support. There are many ways to trade support and resistance. (which you can learn over in our trading community) Global Institute of Trading
For a video explanation of this article, click here
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