Support and Resistance - divide and conquer
The market can be difficult to predict sometimes, but the market can be analysed almost anytime. In today’s article we will discuss the basics of trend trading. Support and resistance levels are one of the most popular indicators among traders.
Support and resistance levels are basis of technical analysis. Even if you think you’ve never used those, 80% probability that is not true. You might have used it even without knowing what that is. How is that possible? Easy. Have you ever invested into Put because you thought the price went too high and most probably will start falling down? Or maybe you’ve clicked Call because the price was too low? That is, basically, how support and resistance levels work.
How does it work:
Support level “helps” the price not to fall down further. It can be considered as a kind of “floor” that keeps the price on a certain level, helping it to bounce of the “floor” and rise up again. Resistance level “limit” the price from above. It doesn’t let it rise up higher.
How to trade using Support and Resistance levels:
As has been found out, the market spends more time consolidating or being flat than showing a strong trend. The ability to correctly trade consolidating market can be vital for a successful trader. Using only support and resistance levels is the basic way to trade the consolidating market.
Basically, all you need to do is to determine the Support and Resistance, and then trade inside those lines!
How to determine where the Support and Resistance lines lie:
In order to correctly determine where the support and resistance lines are, you need to look for “pins” on your chart. “Pins” are where the price has reached its high or low but never broken out. Just like on the example below:
As you can see at some point the resistance line can become a support line and vice versa. But the price is still inside those lines we have drawn.
Notice, that Support and Resistance lines can be not only straight horizontal but that can be located diagonally as well.
We recommend you to train your skills on the Demo platform at first and then switch to the real trading!