Dynamic support and resistance have quickly become a go-to strategy, but how does it differ from the traditional kind? This article answers all your questions.
Table of Contents
1. Introduction
Since the support and resistance theory’s inception, traders have devised several variants and unique applications. One such is the dynamic model, which features a moving chart level. How does it compare to the traditional option?
Keep reading to discover this, including its pros, cons, and applications for the best results. As a perk, readers will gain access to a ground-breaking technical tool with foundations on technical support and resistance principles.
2. Understanding Traditional & Dynamic Support and Resistance Levels
Support and resistance ideologies are some of the most popular and respected in trading. They’ve arguably existed since the outset of technical analysis.
Support levels are chart areas that resist price movement below them. Their strength ‘supports’ the market and keeps it above them.
Conversely, resistance points are chart levels above the market. Theoretically, they should resist price movement above them.
Owing to the expectation to keep prices above and below support & resistance levels, traders exploit them for contrarian actions when the markets approach them.
Technical analysts can classify these levels as traditional and dynamic based on how to discern them.
2.1. Traditional Support-Resistance
True to its name, traditional support/resistance levels feature the initial, generally accepted method of spotting them.
It involves drawing trendlines to connect significant price points in the past and projecting them into the future. Hence, these lines do not move/change during active/inactive market hours.
Popularly, the traditional support levels are straight trendlines that connect old swing lows. Traditional resistance levels connect old highs.
Ambitious technical analysts have also justified other support & resistance levels, including order blocks, candlestick opening & closing prices, liquidity gaps, liquidity voids, etc.
As discussed, when prices reach this level, proponents believe a (short- or long-term) reversal is imminent. Thus, it is more productive to take contrarian trading actions.
One must understand that the market will break through these traditional levels eventually. They can’t actively hold prices back forever.
Therefore, veterans are always prepared for such scenarios in several ways, especially centered around proper risk and money management.
2.2. Dynamic Support-Resistance
The traditional support-resistance principle has given rise to the dynamic variant, among other strategies, theories, and technical tools.
Unlike the former, the dynamic support and resistance levels constantly change/move based on the most recent price action.
Instead of trendlines, indicators such as the Moving Average (MA) and Bollinger Bands act as the support & resistance level.
When the market is below the level (considered a resistance zone), price movement towards it is typically deemed temporary when there is no anticipation of a break above. Therefore, traders prepare to sell or ‘go short.’
On the contrary, the level is seen as a support when the market is above it.
When the price declines in such cases, the strength of the indicator should keep the market above except during expectations of the market break below.
Hence, traders prepare to buy the dip or ‘go long.’
Like the traditional support & resistance levels, the dynamic ones won’t always be ‘strong’ enough to hold prices back.
Traders must always remember this and prepare for worst-case scenarios through risk management practices.
3. Comparing The Traditional and Dynamic Support and Resistance Zones
The primary difference between the traditional support/resistance levels and dynamic support/resistance levels is their static and changing status, respectively. The former achieves it through trendlines and the latter employs technical indicators.
While senior traders may stick with the classical option, newbies may embrace the more recent variant for several reasons.
There is no right or wrong choice, provided it meets one’s demands. However, below is a concise, objective comparison of both and why the dynamic option may be more beneficial in some cases:
3.1. Adaptability
The nature of the dynamic support-resistance zones makes them more adaptable to market conditions – a significant perk over traditional levels.
The market can be remarkably more or less volatile at different times. Hence, strategies and decisions must reflect these changes for better results.
3.2. Simplicity
The traditional support-resistance level is arguably simpler than the dynamic option. It only involves trendlines (horizontal or sloping) that connect already-existing chart levels.
Conversely, setting up the MA can be challenging and pose problems if done wrongly.
Different types of MAs (Simple, Exponential, etc.) can appear in varying periods (20-period, 50-period, etc) in various timeframes.
Momentum trading is focused with the strength of a trend rather than the trend itself. This method assumes that if a trend is strong enough, it will continue in the same direction (either upward or downward).Â
If you employ this approach, you will open your position when the trend gets momentum and close it when the trend begins to decelerate. Volume, volatility, and timeframes must all be considered when determining momentum.Â
The momentum indicator, RSI, MAs, and stochastic oscillator are prominent indicators for this method.
Finally, market sentiment has a significant impact on momentum. News and economic events, such as interest rate announcements, can have a significant impact on FX pricing. When a trend is gaining strength, a big number of traders often enter the market, implying even more momentum.
3.3. Attention Demand
Although easier to set up, the traditional support and resistance levels will require manual adjustments in live trading conditions.
The dynamic option eliminates this stress by automatically adjusting based on real-time price data.
Thus, a trader affiliated with a trusted broker and trading platform will benefit greatly.
3.4. Compound Strategy Integration
Integrating the dynamic support and resistance levels into more complex strategies is easier because the indicators already operate on an algorithm.
More robust trading strategies involving multiple parts can easily collect (constantly updating) data from the dynamic level, unavailable with traditional ones.
It is an added advantage for folks interested in automated trading.
4. Revolutionalizing Support & Resistance Trading with The Pivot Staircases
As discussed, the dynamic support-resistance levels may be better for its adaptability and algorithm-based system, which appeal to traders interested in automated trading.
However, the traditional option, arguably easier and safer to set, has been trusted for decades.
One discovery that respects the traditional theory’s seniority while striving for automation to cater to all traders is the Pivot Staircases for TradingView.
It chiefly relies on dynamic resistance and support areas with added features that provide the following advantages:
- First-hand knowledge of price reversal points to ride potential trends earliest
- Awareness of false breakouts in the markets
- Stress-free analysis and trading, owing to its automated features
- Liberty to explore any market and timeframe desired
- Assurance of taking every promising opportunity, thanks to prompt TradingView alerts
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5. Conclusion
The traditional support and resistance levels feature straight trendlines that remain static until manually moved. However, the dynamic variant adjusts to real-time conditions.
Either may be more beneficial than the other depending on one’s strategy.
However, one of the most recommended tools with a similar foundation is the Pivot Staircases for TradingView. It combines the perks of both options with added features for bolstered technical analysis and trading.
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