What Is Support And Resistance
Keywords: forex,trading,money,exchange,currency,investment,fund,foreign,market,stock,trend,dollar,global
It is very important to understand the concept of support and resistance.
In up trends, every time price drops to the up trend line and then resume their advance, the trend line has acted as support to the price up trend. Support can also be found at prices of previous support or resistance.
In down trends, every time price rises to the down trend line and then resume their decline, the down trend line has acted as resistance to the upward move of market prices.
Resistance can also be expected at prices of previous support or resistance. Once levels of support or resistance have been violated then invariably these reverse their roles, so that previous support becomes resistance and previous resistance becomes support.
Consider the following. When price action drops to a certain level the bulls (i.e., the buyers) take control and prevent prices from falling further. Similar to support, a “resistance” level is the point at which sellers take control of prices and prevent them from rising higher.
The price at which a trade takes place is the price at which a bull and bear agree to do business. It represents the consensus of their expectations. The bulls think prices will move higher and the bears think prices will move lower.
Support levels indicate the price where the majority of investors believe that prices will move higher, and resistance levels indicate the price at which a majority of investors feel prices will move lower.
When investor expectations change, they often do so abruptly. Note how when prices rose above the resistance level they did so decisively. Also similarly with support.
The development of support and resistance levels is probably the most noticeable and reoccurring event on price charts.
The penetration of support/resistance levels can be triggered by fundamental changes that are above or below investor expectations (e.g., changes in interest rates, government announcements, etc.) or by self-fulfilling prophecy (investors buy as they see prices rise). The cause is not as significant as the effect, new expectations lead to new price levels.
As you can see from the charts above. Some times the price will just keep going through support and resistance and sometimes it will come back to test its previous support or resistance line. This applies also to trend lines. We will be going into this in more detail in future chapters when we cover learning to trade.
It is essential to understand the concept of support and resistance. The validity of a trend line is dependent on its duration and the number of times it has been successfully tested.
The longer the trend line has been in effect and the more times it has been successfully tested the more important the trend line becomes. Consequently when a trend line of long duration, which has been successfully tested many times, has been violated then an important reversal of trend has likely occurred.
However, on no account exit the market until definitive evidence of trend termination has occurred. Remember another trading mantra — The trend is the trend until proved otherwise — to ignore this dictum is to unnecessarily deny yourself profits.
Martin Chandra (martinchandra.com) is a full-time investor. He has been researching investment strategies and make his own living. For more information please go to martinchandra.com
Previous Articles Highlighter:
How To Change Careers... When You're Not Qualified (1)
Keywords: career help, career exploration, career choice In some cases, you're right to be worried. Some careers do require you to possess specific qualifications and experience. But on the other hand, perhaps you don't need to be concerned at all...
How To Decide On A Fashion Design School (2)
What is their main emphases in delivering their courses or programmes? These are among the many things that you should give serious consideration to because the fashion design school that you choose will have a large influence on your career in the future.
How To Make Web Surfing Secure (3)
Hackers are diligently at work everyday trying to find the weakness in your system so that they may be able to steal your personal information. Others would simply like to create trouble and destroy your hard drive.
Exiting A Losing Trade (4)
When a market is in consolidation (bracketing/flat) the price will generally oscillate in a broad range. Traders who are watching for the breakout will monitor the security for a qualified break.
What Is Open Source Software And Why Is It Used? (5)
Here are a few facts to convince you that it most certainly does work: - Around 70% of web sites are served by the Open Source Apache HTTPD server. - In a 2002 survey it was found over 31% of UK and nearly 42% of German companies were using or planning to use OSS.
Advertising Tips For A Network Marketing Business (6)
Getting the word out to people that you are there and ready to help them make a bundle from their website. It will not matter how great your website looks, or how fantastic your product or service, if no one knows your site is there you will receive no business.
Securing The Lowest Home Mortgage Rate (7)
It's not likely you'll get offered the lowest mortgage rate on your first attempt. To get the best rates, it's important to plan ahead and exercise patience. Those who do their homework well in advance of shopping for a mortgage will find they are positioned to get a good mortgage rate, and perhaps the lowest going.
A Striking Domain Name Could Be The Key To Success (8)
Doing a search can help you find out if the name you want is available and assist you in reserving it for your own personal site. For more information about domain name searches, visit www.domainhostinghelp.com
Low Mortgage Rates Can Be Had (9)
Income. You don't have to be a millionaire to get offers of low mortgage rates, but you do need to have adequate income. Don't go after a home that's out of your financial reach and expect to get low mortgage rate offers.
On The Importance Of Automation In Business (10)
However, before you decide on SFA software, here are a few points to keep in mind. It should, first of all, be simple. It should have multiple sales processing options and it should be able to function with multiple information sources.
Newer Articles Highlighter:
Anticipating The Market And Execution (1)
Keywords: forex,trading,money,exchange,currency,investment,fund,foreign,market,stock,trend,dollar,global I divide trading skills into two distinct elements: anticipating the market and execution. The anticipating part is reading the market, whether through charts, systems, technical indicators or intuition.
High Low Breakout Technique (2)
After you have a few days worth of data you can get an average. On the excel sheet, below the first five columns are the date, open, high, low and close.
What Is Simple Moving Average? (3)
An appropriate choice relevant to one's trading style is the most obvious. If you are a very short term trader, then a moving average of as little as three days may be appropriate.
Where To Place Your Trading Stop (4)
In the example of EUR/USD the trader enters the market long at 1.0840 on the breakout of resistance at 1.0835. He determines that he will use a dollar value as his stop of $300.
The Mastery Of Self Trading (5)
Most of the beliefs, or rules, that govern our behaviour now, were formed in early childhood. They have become predominantly unconscious beliefs and their effect is to dictate the way we respond.
Day Trading Strategy (6)
There are different approaches to creating an edge in trading. One that I like is to have a technique for determining the trend of the market and then looking for opportunities in line with the trend.
How To Lose Weight By Avoiding The Triggers To Weight Gain? (7)
I guess the same philosophy can be applied to weight loss. Before you attempt to lose weight, it is a good idea to seek to understand what triggers you to gain weight in the first place.
Intraday Trading Tactics (8)
Well, if for example the low of day three continued lower than the low of day 2 I would begin to wonder if the market was retracing or reversing. If the low of day three took out the low of day 2 when I expected it not too I would stand aside until I had a clearer picture of where the market was headed.
The Trend Is Your Friend (9)
Reaching a stage where you can comfortably accept losses, in the knowledge that your method of trading will produce profits in the longer term, is the state we have to aspire to.
The Flaw In Our Emotions (10)
- Buy companies with strong histories of profitability and with a dominant business franchise. - You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.