There are tons of ways to trade the financial market.You can trade with fundamental data or doing technical analysis.Support and resistant are the popular terms in forex or stock trading.When a trader trades with price action he also apply the theory of support and resistant. SO, What is support and resistant?
Well,support and resistant are the key areas in a chart where price previously bounced back and we can expect that future price will also find a buying or selling pressure.
Why using support and resistant?
Snr are widely used in the trading world. Most technical traders trade only based on it and also some fundamental traders are aware of this trading term.When price find a support or resistant it is clearly seen by every trader. So, for the mass psychological effect price will respect the level again.
Does snr work every time?
Hell no, it is just a theory. A professional trader never expect a trading system or theory that works 100% of the time.If it so,everybody would become billionaire . As a technical trader you can expect 50% win rate from these key level.If you have better risk reward ratio then at the end of the day money will always go right into your pocket.
How to draw support and resistance?
First of all look at the chart with clear vision. If you can clearly see a level or multiple levels are being respected then pick the level and draw a horizontal line. Look at every potential bounce area and draw the line. In your chart you can have up to five support and resistant level.Just make sure that it is clearly visible.
How to trade support and resistant level?
That is a million dollar question. To trade with snr firstly you have to consider a good snr level.A good snr means it is strong and clearly seen by mass people. After drawing all the support and resistant lines just wait for the price to come to your desired level . Look at this point carefully, You need to take note of how price is behaving near to this level.Ask yourself a question. Is it a strong and sharp price move towards the level or a weak multi candle move with huge candle wick. If the first questions answer is yes avoid this trade. If no, then wait for the answer of the second question. If the second question is yes then wait for a candlestick formation to confirm your price prediction. If you see any kind of reversal price pattern around this level then take the trade with confidence because there is a better chance it will hit your take profit.
How to know a level’s strength?
That is an another important question. Again ask yourself two questions.
1.previously how did the price bounce back, strongly or weakly?
2.How far the price went before coming back again?
If price previously moved heavy strongly from a level then it is considered a strong price level.There is a high chance that price will again bounce back.
Previously travelling distance of the price from a level is also import. Because, the stronger the level the price will more go far away. If you see price moved too far away from the level then consider this is a potential level to trade.If you have these two questions in mind and also have positive answer then you can place a trade around this level.
Conclusion:Support and resistant are two very important factor of technical analysis.If you can apply it properly with confirmation you will be making serious money .Besides learning snr,learn to build your own trading strategy combined with snr. Try on demo first,if you find that profitable system just go live and enjoy trading. remember:support and resistance in forex works better than stock .Good day traders.