Winning Support and Resistance Strategy
Support and Resistance
Support & Resistance lines - Make or break price points
Support and resistance lines conform the most basic analytical tools and are commonly used as visual markers to trace the levels where the price found a temporary barrier. In other words, where price had trouble crossing.
From a strategic point of view, support and resistance levels represent smart places to anticipate a reaction in the price of an asset, and therefore represent a basic tool in technical analysis. Numerous traders use them, but the diversity in application and integration tell us that charting is definitely not an exact science and more of an art.
One of the most common mistakes that new traders make is buying too close to a line of resistance or selling too close to a line of support. In this page we provide enough set-ups and real-time examples, to make sure you thoroughly understand this simple yet important dynamic.
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Price zones
Don't be disappointed if S&R lines haven't worked for you until now. You see, in reality, support and resistance are price zones, not exact numbers. This is clearly visible when switching from a higher timeframe to a lower one: an horizontal line on a weekly chart can perfectly be made by an horizontal price channel on a one hour chart.
This is why it often what appears to be a break of a support or resistance level is just the market testing it. These 'tests' of support and resistance are usually represented by the candlestick shadows piercing the S&R
levels.
If the market were made by S&R lines and not by people, then the exchange rate would always rise and fall to the same exact price points, over and over again.
But because that rarely happens it's important to think of support and resistance as zones on the chart where people buy and sell.
One way to induce the habit to treat S&R lines as zones is drawing them with fat lines, avoiding a fine-point trace. That way you won't fool yourself into believing you have identified the exact price at which a currency pair is going to turn around and start moving in the opposite direction. And even better: draw the lines, especially the horizontal ones using two lines, an upper and a lower one, or use rectangles to mark the zones. Your chart platform has all these fancy tools for sure.
Identifying Supply and Demand
There where the difference between the number of buyers and sellers get more remarkable, it tends to form a Support or Resistance level. Your next logical quest will be to identify them on a price chart.
Historical and potential levels, can
lead to several constructs: horizontal lines and dynamic trendlines are the most used ones and can be based on significant highs and lows. Lines are also used to delineate price channels as well as classical chart
figures such as triangles and wedges.
Some technical indicators can act as potential levels, such as sentiment chart, moving averages, Pivot Points and
Fibonacci cycles which are commonly used in Elliott Wave analysis.
Round numbers - those quotes ending in 00 or 50- and emotional spikes are often perceived as Support and Resistance levels.
When these levels encompass a larger area on the charts technicians speak of a Support and Resistance Zone.
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Editors' picks
EUR/USD struggles near 1.0550 amid dour mood
EUR/USD struggles near 1.0550 in the European morning on Thursday. The pair faces headwinds from risk-off flows due to rising geopolitical conflict between Russia and Ukraine and worries over the potential US tariffs on the EU. ECB- and Fedspeak are awaited.
GBP/USD trades around 1.2650, upside potential seems limited
GBP/USD keeps its range near 1.2650 in early European trading on Thursday. The pair's sidetrend could be attributed to the softer US Dollar and a risk-aversion market environment. Traders stay cautious amid rife geopolitical tensions and a light economic calendar. Fedspeak eyed.
Gold needs acceptance above 2,660 to unleash additional recovery
Gold price is sitting at the highest level in over a week above the $2,650 barrier in the Asian trading hours on Thursday. All eyes remain on the speeches from several US Federal Reserve (Fed) policymakers and Russia and Ukraine geopolitical updates, in the absence of top-tier US economic data releases.
Shiba Inu holders withdraw 1.67 trillion SHIB tokens from exchange
Shiba Inu (SHIB) trades slightly higher, around $0.000024, on Thursday after declining more than 5% the previous week. SHIB’s on-chain metrics project a bullish outlook as holders accumulate recent dips, and dormant wallets are on the move, all pointing to a recovery in the cards.
Sticky UK services inflation to keep BoE cutting gradually
Services inflation is set to bounce around 5% into the winter, while headline CPI could get close to 3% in January. That reduces the chance of a rate cut in December, but in the spring, we think there is still a good chance the Bank of England will accelerate its easing cycle.
