Support and Resistance Trading

support & resistance |  Support and Resistance Trading

What is support?

Support is a level that the price of a commodity, share, currency or index becomes supported at. It is the level that buyers agree is good value and start buying whilst sellers agree is not good value any more and get out of their sell trades.

Support can also be called the demand level, it is the level or price that demand for a stock or currency is strong.

Support can also be called the area of fair value or price balance.

What is support and resistance

What is the correct definition of support and resistance?

I have studied support and resistance for over five years now. I know I have a better understanding of how to plot the major levels of support and resistance than most so called support and resistance forex traders.

By major levels I do Not mean by default the levels taken from higher timeframes, no two levels of support and resistance can be considered equal, one will be respected whilst another will be totally ignored.

You will hear all sorts of phrases in your forex journey, orderflow, supply and demand, buy zones, sell zones, consolidation areas, accumulation areas, fair value zones, initial balance areas, ranges, sideways movements etc etc. To me they all mean the same thing, SUPPORT AND RESISTANCE.

Pleas don't let yourself get confused by jargon. Let me put it in a sentence for you.

Support is just a low point in price, a level that buyers consider the price to be fair value, there is demand at that level, the price doesn't want to go lower, it moves sideways, ranges up and down bouncing on that level, long / buy orders will be accumulating at that level

Resistance is the opposite, it is a high point where buyers have run out of steam, they will be thinking it is a good place to sell and take a profit, there is plenty of supply.

Remember, it is the big players that drive the prices, it is the big orders that cause the movements.

Consider a city dealer has bought 100 million worth of gold at 1300 an ounce and it has risen to 1400 an ounce and now he wants to realise his profits. What is the best way to maximise his gains, sell the 100 million in one go, or sell in little chunks?

With 100 million he can do what he likes. If he sells all at once he may not get a buyer for the whole 100 million and the price will just collapse, not a great way to maximise gains really, however if he sells 10 million at a time the price will drop a little and should recover or might even continue up, then he can sell some more for an even better profit, and again and again. Some traders may even use their profits to drive the price back up again, it is mad but it happens.

That is what causes sideways movement and volatility, that is why the price moves like it does.

Then think about the effect of multiple big money traders all battling it out on every different timeframe, that is why we HAVE to understand just what the charts are telling us about trends and support and resistance.

More to follow.

How to define true support and resistance

Support and resistance trading part 2