Posted on: 22 July 2018 by Darlene Ivory
Support and resistance trading are really popular, and you will probably find a lot of traders who decide to go with this kind of strategy to help them do well.
In these cases, support will be the price level when buying is so strong that it can reverse or interrupt the current downtrend that is going on. When your current downtrend ends up hitting a new support level, it will bounce. The support will then be shown on a chart using a horizontal line that will connect at least two bottoms.
On the other hand, the resistance will be the opposite. This is the price level where the selling position is so strong that it can reverse or interrupt the uptrend. When your uptrend hits that resistance level, the trend will stop and sometimes it will even tumble down. Resistance can be represented on your chart by a horizontal line that will connect at least two tops.
It is possible to get minor resistance or support. These will cause the trend to pause. But when you are working with a support or a resistance that is considered major, it can make the trend reverse. Traders who use this strategy will buy at the support and then sell at the resistance, often causing the strategy to be more effective because of the way they are behaving.
Finding the resistant or support lines on your daily charts can be difficult, and there will be sometimes when it is hard to draw a line that is clear. You do not have to draw anything on the chart if you cannot find it that day because if you are missing out on the line, it is likely that others would not see them either. When this happens, you may want to consider another strategy for the day.
When you are ready to draw some of your own resistant or support lines on your daily charts, here are some of the tips that you can use to make it easier:
- You will usually start to see indecision candles in the area of resistance or support because this is where the sellers and the buyers are closely fighting against each other.
- It is common to see whole dollars, and half-dollars will act as the resistance or support level, especially when you are working with stocks that are $10 or less. If you are not able to find the resistance or support line that is near these numbers on your daily chart, remember that these numbers can be like an invisible line.
- When you are drawing the lines, you need to make sure that you are looking at data that is recent to get the best results.
- The more of the line that touches onto an extreme price, the more that the line is a good option for your resistance or your support and it will have some more value. You will really want to emphasize this type of line.
- You only want to consider the resistance or support lines that are in the current price range. So if the price of the stock is at $20 right now, it is not worth your time to look for these lines in the region of when the stock was $40. It is not that likely that the stock will get up to that area again so stick with the range where it is right now.
- Remember that these lines are not going to be an exact number and they are more of an area. So, if you find an area that is around $19.69 for a support line, you will see the movement to be near that number, but not exactly that number. It is usually fine to see the area being between five to ten cents of the number that you find.
- The price that you are working with needs to have a clear bounce from that level. If you cannot determine if the price has bounced at that level, it is probably not the resistance or support level that you want. Resistance or support levels that are important will stand out and be really noticeable, so if you are questioning one of them, they are not the right one.
- When it comes to day trading, it is best to draw these lines across the extreme prices on daily levels rather than across any areas where many of these bars have stopped.
When you first get started with these lines, you will find that drawing them will be pretty tricky. The good news is that when you get started and try it a few times, you will get the hang of it and see that it is not too hard.
Once you have been able to draw these resistance and support lines, it is time to work on this strategy to decide when it is time to purchase and sell the stocks that you are working with. To get started with this trading strategy, follow these easy steps to help you get started.
- In the morning, make your watch list for the day. Look at the charts and then use the steps above to pick out your areas of resistance and support.
- Now watch the price action in those areas on your five-minute char. If you find that an indecision candle is forming near that area, it is a good confirmation of that area, and you can enter the trade. You will want to make a purchase as close to the support level as possible because this will help you to minimize your risk.
- You will then decide to withdraw and take out a profit when you reach the next support or the next resistance level.
- You will want to keep the trade open so that you can hit your target for profit or until you reach a new resistance or support level.
- Some traders will sell at half-positions near the profit target before moving the stop up to the entry point to break-even.
- If you are looking at the charts and there are no obvious resistance or support levels that you can work with next, it is time to consider closing your trade. It is best to do this at the nearest round-dollar or half-dollar levels.
There are a lot of stocks that will work with this kind of trading, and it can be a great one to help you to figure out the best time to enter the market and when to end. You will need to have some practice on how to draw your own resistance and support lines, but once you have that part down, it is really easy to work with this kind of strategy to see results. Click on this link, to find out all about resistance trading.