Curious about support and resistance? Dive into one of technical analysis’s oldest, most trusted, and most embraced theories in this concise article today.
Table of Contents
1. Introduction:
Support and resistance theories have guided price analysts from time immemorial. The imaginary yet practical levels range from simple horizontal lines to complex intersections on extensive study.
Fortunately, this article covers the essentials, from definitions to unwritten rules, to bolster any trading strategy. Readers will also benefit from an exclusive technical indicator that remarkably streamlines trading with its concepts.
2. Fundamentals of Support and Resistance in Technical Analysis
Support and resistance levels in technical analysis refer to chart levels that tend to prevent prices from breaking through them.
More precisely, a support level is where an asset’s price is expected to reverse during a price fall (bearish run). It acts like a floor, preventing prices from declining further. Hence, the strength of a support zone depends on how efficiently it can keep candlesticks above.
Conversely, resistance levels are chart areas with expectations to keep prices below during a bullish run. The best resistance zones will prevent price surges, no matter how promising, from breaking above.
Therefore, either chart zone (when untested) is below and above current market prices, respectively.
Support and resistance levels are significant in technical analysis because seasoned traders employ them for price forecasts.
Fundamentally, most consider support levels potential buying opportunities, as there is hopeful anticipation of a reversal or consolidation from the bullish trend. Similarly, resistance levels are potential selling points if the price should eventually respect them.
Thus, subscribers to this trading idea intensify their efforts to uncover respectable support and resistance levels.
The best are usually those with a strong market reaction from historical analysis. It could result from old highs or lows (as in the examples above), Fibonacci points, high-volume areas, or psychological levels.
Support and resistance points can also result from rising or falling slopes.
There is no hard-and-fast rule regarding requirements for these levels. However, they must be strong enough to hold back prices for the best forecasts.
3. Do's and Don'ts with Support and Resistance Levels
With expert application, the support and resistance theory is among the most dependable technical trading options. Pro analysts can confidently forecast high-probability reversals and ride prolonged trends till the last pip.
Luckily, newbies can also find remarkable success by sticking to these rules:
3.1. Supplement the Theory With Other Unique Strategies
Despite the trust in potential reversals from support or resistance levels, experts always advise using other unique strategies for confirmation.
The market will eventually violate such zones during a much stronger price surge at some point. Thus, working with multiple techniques shields one from false signals.
3.2. Conduct Multi-Time Frame Analysis
Price may break through a support/resistance level on a lower time frame to respect another on a higher time frame.
Similarly, some seemingly inexplicable reversals on higher time frame charts may result from a support/resistance level on lower timeframe ones.
Therefore, draw and work with these barriers from multiple chart durations to avoid surprises.
3.3. Don’t Compromise on Reversal Opportunities
Support and resistance levels can be tricky and subjective. The demand for one to study multiple timeframes makes analyses even more challenging.
Hence, avoid complicated setups and engage the explicit ones.
Wrong signals can cause far more harm than anticipated.
3.4. Don’t Be Too Rigid With Your Expectations
Flexibility is also a big part of this strategy because market conditions change over time. Manipulation, high-impact news, and unexpected events, among others, are a few causes of unforeseen price moves.
Therefore, the finest support/resistance traders take risk management seriously.
Place stop orders for capital protection and take profit to secure profits.
4. Mimicking the Pros With the Logic Trendline Indicator for TradingView
Attaining success with support-resistance principles is easier said than done. Several setbacks discourage inexperienced analysts, from the necessity to work with other tools to the subjectivity of such levels.
Fortunately, Indicator Vault has developed a ground-breaking tool, The Logic Trendline Indicator, to trade these levels like a pro.
It identifies the most respectable support and resistance zones, giving you an edge every trading day.
Concisely, here are some benefits every subscriber enjoys from its application:
- Assurance of the best support or resistance zone in the market
- Earliest awareness of potential reversal points
- Liberty to engage any instrument or timeframe desired
- Guarantee of taking part in every potential opportunity, credit to the timely signal alerts
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5. Final Thoughts
Support levels ensure an instrument’s price remains above, while resistance keeps them below. Hence, traders expect significant reversals in such areas.
New and interested analysts must learn to supplement this trading strategy with others while avoiding rigid expectations. However, with The Logic Trendline Indicator for TradingView, one can skip all the rules and boast better results.
Please leave feedback for engaging community discussions below, and remember to share this article with more ambitious traders.
