et’s remind you of what you’ve learned about trading support and resistance until now.
Resistance is the highest point, which the price is reaching while moving up and just before to pull back and go down.
The resistance is a price indicator on the basis of which a sufficiently large number of sales items is concentrated.
Support is the lowest point reached on the way down, right before the price climbs back up.
The support is a price indicator that allows strong buying positions to be gathered.
Levels of support and resistance are key areas where there is a balance between buyers and sellers, where supply and demand forces are balanced.
Support and Resistance are zones, which can be called ranges of price reversals.
Trading is not an exact science, so don’t think of support and resistance levels as concrete numbers.
In order to filter out false breakouts, it will be easier to plot support and resistance on a line chart rather than using a candlestick chart.
Support and Resistance Can Reverse Roles.
For example, if we have an uptrend and the price bounced up after touching the trend line, this showed that the uptrend is still valid.
If the price breaks the trend line, it means that a reversal will follow and the uptrend will change to a downward one.
If we have a downtrend and the price bounces down after touching the trend line, this shows that the downtrend is still valid.
If the price breaks the trend line, it means that a reversal will follow and the downward trend will change with an upward.
This concept is known as “role reversal“.
The uptrend line is obtained by merging a straight line with two or more peaks in support areas.
Also known as an ascending trend line.
The downtrend line is obtained by merging a straight line with two or more peaks in resistance areas. Also called a descending line.
There are three types of trends:
Uptrend (higher lows)
Downtrend (lower highs)
Sideways trends (ranging or flat)
You can create trend channels if you draw a parallel line at the same angle of your already drawn line(uptrend or downtrend line).
There are three types of trend channels:
Ascending channel (higher highs and higher lows)
Descending channel (lower highers and lower lows)
Horizontal channel (ranging)
If you want to create an ascending channel, draw a parallel line at the same angle as an uptrend line and then move that line to a position where it touches the highest point of the wave.
When the price touches the UPPER trend line, this may be used as a selling area.
If you want to create a descending channel, draw a parallel line at the same angle as the downtrend line and then move that line to a position where it touches the lowest point of the wave.
When the price touches the LOWER trend line, this may be used as a buying area.
To build a sideways (horizontal) channel, simply draw a parallel line at a zero or flat angle.
How to Trade Support and Resistance
There are two main ways in which support and resistance can be traded – bounce and breakthrough.
This is the situation where the trader waits for the price to bounce from the support or resistance line and then the trader enters the price rebound.
The basic premise is that the zone of resistance or support will hold and the market will actually turn around.
In this case, you prevent yourself from unexpected scenarios where the price breaks through the support and resistance levels.
There are two ways for trading during a breakout – an aggressive way and a conservative way.
The aggressive way is when you are opening sales positions when the price breaks the support zone or buying in case of breaking the resistance zone. The strategy works effectively in market trends and it is not recommended to trade it on a flat market.
The conservative way is all about being patient.
After the price breaks out from the support or resistance level, the trader is waiting for the price to make a “pullback” and touch the channel border again and when the price bounces, he enters the market.
That is a great way to trade support and resistance zones. If enough withdrawals (selling and liquidation of losing positions) occur at the broken support level, the price will reverse and start falling again(i.e the price will return in the direction of the break).