When this happens, I enter the market with a long position only if the price bounces in bullish direction from this level. Our expectations for this stock were slightly higher due to the nature of the trading range that the stock was within. Note the swing low that occurred in the down trend on the left side of the chart. Notice that I call these potential and not actual. This test was very telling. A trading range is simply an area of price contained between parallel support and resistance levels like we see below price oscillates between the support and resistance levels in a trading range.
and Resistance” (S&R) in the trading markets tional strategies is to buy and sell before others. RESISTANCE SIMPLIFIED. SUPPORT AND RESISTANCE SIMPLIFIED. SUPPORT AND RESISTANCE SIMPLIFIED. SUPPORT AND RESISTANCE SIMPLIFIED. SUPPORT AND RESISTANCE SIMPLIFIED. SUPPORT AND RESISTANCE SIMPLIFIED. SUPPORT AND RESISTANCE .
Price Action Strategies
The first step of this strategy is drawing those Zones on our charts so that we can easily spot where the price would probably reverse. After you do this, it will resemble a support and resistance indicator only you now have zones to take advantage of. Drawing Zones on the chart is better done on a higher time frame so that we can examine the main reversal levels and the more critical points on the chart as a higher time frame shows us the bigger picture.
Its almost like what we talked about in our article about the importance of multiple time frame analysis. We begin by drawing horizontal lines on recent Peaks and Bottoms like you see below in our chart example: Examine this chart as it is critical for you to understand these zones. When you are doing support and resistance trading, a line with multiple touches is far better off as it is clear that it stood against the price and passed the test for many times and it will continue to do so.
Because History always repeats itself and this continues to happen time and time again on every chart that you will ever look at. This strategy could easily be compared to our Red zone strategy that shows you how to draw zones on your chart. When you take a look back after drawing Zones will find that those lines withheld the price for numerous times before and will continue to do that for numerous times more.
The second step is waiting for the price action to touch the Zone so what you can do is set your charts on 2 to 4 currencies and wait for your chance as it may take some time for the price to reach the support resistance levels. The reason we say 2 to 4 currencies is because this is a good number of pairs to be looking at and will not overwhelm you mainly so you have a good judge on your trade opportunity.
In this chart we see the price action approaching support and actually almost touched the support so we wait to see the form and shape of the next candle. If the price reverses that will be good as it is what we are expecting but need a strong reversal candle though to assure that price will reverse and that it will not collapse back again. On the other hand, if it breaks that level it may be real breaking or a fake breaking so we also should see a strong piercing candle that effortlessly break that level to assure it will continue on the same way.
The Third step of this trading strategy is to wait for the candle which hits the zone to close as this will be probably the signal candle we are waiting so look at that candle. Is it a bullish or bearish candle, is it strong or weak, big or small, does it have long wicks or small wicks or no wicks at all, when you can identify the kind of candle then you will be able to decide whether to sell short or buy long.
In the chart example above we see how Support rejected the price and pushed back up and we see the candle that formed afterward to signal the end of the down movement and the beginning of and upward movement. Before we go any further, here are some important factors in determining a strong candle because spotting that specific candle on zones makes the difference between winning trades and losing trades.
This example shows us how a strong candle should look like as we see how the strong candle over power the one before. Here, you can see that those weak candles were not able to breach the Resistance line and had long wicks and could not break that level so we wait to see what will happen with the next candle will the price action break that level or will the resistance win and the price reverses. On the first case the candle on the left that we marked for you: While in the second case the candle on the right that we marked: Your entry should be slightly above or below the signal candle which is the strong candle, this way you are adding more confirmation to your trade to make sure that the price will move towards the direction you expected it to move to.
Our stop loss should be placed on the other side of the zone and not too close to the level to give it some space as we said it is a Zone, Putting the Stop loss there because this the end of the trade as the price is unlikely will reverse after that point.
Now we have learned from this Support and Resistance strategy how to draw Zones and how to trade them successfully and how to determine the direction that the price will probably move to, so we could have a better edge in our trading.
If you liked this strategy or still need to more information please leave a comment below and we will answer your questions! Please leave a comment below if you have any questions about Road to Successful Trading! Grab the Free PDF Strategy Report that includes other helpful information like more details, more chart images, and many other examples of this strategy in action! They signify massive shifts in ownership and can provide very strong support and resistance in a market.
Let's take a look at an example. We are going to take a look at a trade that we actually were involved with back in Sirius Satellite SIRI announced that Howard Stern was going to move over to their platform and the stock catapulted much higher in a very short time. Let's review the graph. Look at point A on the graph above. The expansion in volume and price created a large imbalance between buyers and sellers and once it ran its course, it set up a resistance level that took 9 months to penetrate.
Typically after a blow off top, an immediate response will follow in the opposite direction due to profit taking and new shorts speculating that a top is at hand. The low point put in, as seen at point B, is called an "automatic reaction". Automatic reactions are typically fast and swift in nature just as the preceding up move was. Points A and B now set up your range of support and resistance that you can expect the stock to trade within until an indication is made by the stock that it wants to break out of the top or bottom.
Moving on to point C; frequently, you will see a re-test of the blow off top A , this is commonly known as a "secondary test". In our case, the secondary test came in with lower volume and failed to take out the price highs that we set back in January ' The zone highlighted in blue is very important because it is a false break to the downside.
This break came on very light volume and then moved right back into the trading range in early September. This indicates to us that a move back to the top of the trading range may be in store.
Point E was just that. This test was very telling. The increase in volume over the January levels told us that the buyers were strong and looking to push prices higher. We should now be on watch for a break higher. The price action between points E and F were of strong significance. Notice how the price retracement off that high was shallow and notice also how volume contracted by quite a bit as well. Price was rejected but not severely. This confirmed a breakout on the chart. Notice how the stock moved significantly higher into point G where it set up an island top candlestick reversal with gigantic volume.
This was the beginning of the end for this stock and these levels were never seen again. Our expectations for this stock were slightly higher due to the nature of the trading range that the stock was within. We are talking about the the relationship between "cause" and "effect". In a nutshell, the greater the preparation, the stronger the result.
We have to keep our charts in perspective, a shorter term formation will most likely not produce as dramatic a result as a longer term formation such as the one we discussed above. Defining support and resistance levels is not an exact science.
You will rarely get support levels retested at exact prices. Keep an open mind; most of the time, you will see zones of support and resistance. A few key points we want to mention regarding trading ranges.
If a stock moves out of its support and resistance boundaries with heavy volume, you are possibly looking at a shift in the character of the stock. For example, if a stock moves up through the top of its range with heavy volume, it is indicating that the buyers were able to take hold of the stock and overpower the sellers at that level. This is bullish and the former resistance level should now be considered as support on a pullback.
You can almost look at it as if the bulls claimed victory at that price level. A breakout of a trading range in which the preceding trend was sharply down is more reliable than a breakout of a trading range that comes after a rally.
Support and Resistance Lines
Free PDF Trading Strategy that works! Support and Resistance Trading Strategy is the Best Trading Strategy for Forex, Stocks, Options. Support and Resistance: Trading by Reading a Market [Published by] – kalmarsunqdhotel.tk – Page 1. Support and resistance do not appear by some mathematical formulas, those lines appear then attitude of trader towards the market changes. The bigger shift in outlook to the market by the. Apr 26, · The support and resistance strategy will help you in trading support and resistance and uncovering support and resistance zones. Its Easy to learn and can be applied to your trading system now. Entry/Exit Criteria for this support and resistance trading strategy: Grab the Free PDF Strategy Report that includes other helpful information /5(2).