What Is Support And Resistance From Basic
Technical analysis has multiple concepts in its support and resistance is one of those concepts, support and resistance are the predetermined levels of a stock/share plotted over the price chart of a share.These levels are very important for every trader as it is seen that the price might stop and reverse from that particular point of support and resistance. Now you might have got a basic idea of what support and resistance is and how it works, just like their name suggest support means when the price comes near support level price has a higher chance of bouncing from there and resistance means when the price comes near resistance level price has a higher chance of reflecting from there.
Basic of how to use support and resistance
As we have already discussed in our previous lessons never trade with just one confirmation always look for at least a minimum of 3 confirmations before trading. Here we will discuss how we can use support and resistance for better winning rates. But before that, we will learn how to draw support and resistance, if the price stalls and reverses in the same direction on two different occasions in succession, then a horizontal line is drawn to show that the market is respecting that area and might reverse from there in the future too.
* Use trend lines with support and resistance
First, you have plot support and resistance zone on the price chart of a share and check in which direction it’s moving currently for that you have to plot trend line, suppose market was in downtrend draw a trend line with its direction than wait for it to reach support area so you can take a better trade, Here a picture example for your better understanding here look at the picture below:-
* Combine major and minor support and resistance levels
Minor support and resistance levels are useless if used alone but if they are used with other things like major support and resistance levels and trend lines it can do miracles. Here is an example of what I am trying to say minor levels won’t hold if they are used against the main trend suppose the main trend is uptrend but you using minor resistance against it wouldn’t hold it and give you loss in it, so it’s better to use minor and major levels together for better results. For better understanding here look at the picture below:-
Till now you already know what is support and resistance and how to plot in chart but their role can be reverse what I mean by that is suppose you plot support and resistance line and in future instead of bouncing back it gets break which usually happen to all support and resistance zones , so what will you do next is change their role means if price breaks support from above and now trading below it now that support will become resistance , remember this line if breaks support become resistance and resistance becomes support .example:-
Other consider factors to while using support and resistance
What are the other factors you should keep in mind while using support and resistance we will discuss here, as you already know just one thing alone is never enough especially if we talk about stock market. So let’s see the other factors that you should keep in mind:
* Checking the importance of zones
Whenever we buy something we always check that product quality right? So same when we try to find a support and resistance zones in price charts we should check weather that zones is till significant for not means you check weather that level is already broker or not . You should never use a zone which has already been broken. Always look for fresh zones because that zone has more importance than the previous ones.
* Number of touches at certain point
It is said the more a zone is touch the more it is important well it is true to a certain point means those touches at zones should not be in short interval of time means each touch should have a good time gap between them for it to be a good zone .
Tip: If a zone is tested multiple times in a short period of time the weaker it becomes and has higher of chance of getting break.
* Volume at certain price levels
Whenever you take a trade near support and resistance zones you should also check the volumes at those particular zones, the more volume the better chances that zone has of working out. For checking volume at those zones you can use a indicator name as volume profile you can easily find in your indicators charts.
The most important thing is time frame which can completely change what you are seeing and what actually is happening in market. Suppose you are using 15 minutes time frame and then you see a support zone and decide to buy there but some traders are using a 1-day time frame and see a resistance there and they sell there and in it the end you lose that trade that day, the main reason why you lost that trade is because you didn’t consider the bigger time frame.
Tip: the bigger time frame is stronger and is more important than smaller time frames.
Just like everything in this world support and resistance to have their limitations, its main limitation is it’s too unpredictable no one can say whether that zones you made will hold or not means most of the time it gives false breakout but if you combine it with other things like trend lines candlesticks and indicators you can improve your winning rates and earn some money in the market.
Support and resistance are some of the pillars of technical analysis without support and resistance you can’t trade in the market. If you are a beginner in the stock market I would advise you to use this knowledge given in this chapter for better results.
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