Table of
Contents
Horizontal S/R.............................................................................................................................................. 6
Zones........................................................................................................................................................... 7
Long Wicks /
Tails........................................................................................................................................ 8
Channels / Trendlines.................................................................................................................................. 9
Pivot Points................................................................................................................................................ 10
Fibonacci.................................................................................................................................................... 11
Moving Averages (MA)............................................................................................................................... 12
Using Confluences
of S/R.......................................................................................................................... 13
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Thank you for
downloading this Trading Guide. This
is the
second of a 4-‐part series
to introduce
you to
Technical Analysis. Each part has a
video and accompanying trading guide which you can view below.
Part 1: Trends
Part 2: High Probability Support
& Resistance
Part 3: Chart Patterns Trading
Part 4: TA Techniques Combined
SUPPORT & RESISTANCE EXPLAINED
At any one time a trader has only 3 options
-‐ Buy (buy long)
-‐ Sell (sell short)
-‐ Stand aside
Let us take a scenario of the bulls pushing prices
upto a level that has previously been a resistance level.
-‐ Bulls successfully overpower bear to push up prices
-‐ Price reaches a level that, for whatever reason, saw price previously reverse
-‐ As we approach
this level some bulls decide to cloe thier trades and book a profit
-‐ At the same time some bears see price approaching the level and it loses momentum, so decide to sell short
-‐ Price now slows further, and even halts near the resistance level
-‐ Some other bears come along and decide to join the party, so also sell short
-‐ Price begins to decline away from the resistance level -‐ The resistance
level has been respected
Further In Time:
-‐ Price accelerates towards the resistance level
-‐ Some bears, who previously profited
from going short at this level, sell short again
-‐ However in this instance there are more bulls than bears, so price breaks though the resistance
-‐ Once past the resistance level price triggers
the bears stops, forcig price even higher still
-‐ Some bulls take profit whilst some bears also decide to go short -‐ price retraces towards prior resistance
-‐ Feeling more confident
the bulls buy more at the previous
resistance level and price slows, then goes up
-‐ Our previous resistance level has now become a support level
Now we understand what causes Support and
resistance (S/R) we can now form the following assumptions
-
Support becomes resistance and
resistance becomes support
-
The longer an S/R level holds the more significant it becomes
-
The more time an S/R level holds
the more reliable it is deemed to be
-
When a significant S/R level
breaks the more significant a subsequent move can be expected
Support
and Resistance interchange:
Once a level of resistance has been
broken to the upside you will often see this same level retested. If this holds
the previous resistance is then considered to be a level of support. The
reverse is also true – when a level of support breaks it often becomes a level
of resistance.
The longer an S/R level holds
the more significant it becomes
Levels of S/R can last anything between a couple of
minutes, to years or decades.
The reason for the break does not
usually concern the Technical Analyst because we assume something special has
changed within the market conditions for this level to break.
MEDTHODS TO IDENTIFY S/R
Whilst there are many inventive ways of
finding S/R levels I am going to cover some of the simplest and most frequently
used. These are the methods I use myself and are applicable to every timeframe
or market, and accessible to anyone with charting software.
The idea is to combine
several forms of S/R to gain more confidence
in a particular level holding in future. The more of these levels you can identify
within a relatively close range to each other,
the better.
Price
-
Horizontal S/R
-
Zones
-
Trendlines / Channels
Indicators
- Pivot Points
- Fibonacci
- Moving Averages
This is by far the most simple of
methods, and the one I use most often. If you had to learn only one form of
analysis then I would recommend Horizontal S/R.
All we are looking for area areas on the
chart which have been tested many times (the more times the more reliable) and
ideally have been tested as both support and resistance. If they have been
tested as both support and resistance, then you will hear me refer to these
levels as pivotal S/R levels.
Use the Crosshair to identify
horizontal S/R:
Press Control+ D to enable the crosshair
on your chart, then move your mouse up and down the chart (without clicking) to
find areas that have been tested and respected on the chart. These levels
needn’t be perfect (although sometimes they are) so it is OK if the Candle
Tails/Wickes test the levels once in a while. Always start on higher timeframes
to identify major levels or S/R before moving to lower timeframes to repeat the
process.
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