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How good is static Support/Resistance?

Krelian99, Wed Feb 15, 2017 12:12 am

Similar to trendlines, Support and Resistance is a widely used kind of analysing the chart in the western world. The S/R can be either a High or a Low in the history, but not all are relevant. The market stops at these levels and either bounces back or breaks through. After a break through a Support can become a Resistance and res versa. These levels have to be seen more as zones than as line. These levels can be used in every time frame and can be important for very long time.

Money makers test where buyers and where sellers come into the market and try to shake them off. Typically the wick looks out of the zone and the body closes again in the zone. The longer the wick, the stronger the sign that the market will stay in the zone and likely will be on the way to the other end of the zone.

Sometimes it needs some more time before the market turns or rally on. So beware of it and don't let put you into a weak position. Bigger events of shaking off bulls and bears are the Bulls trap or the Bears trap. A Bulls trap is a long fake move out of the zone, so everyone should think it's a break out. SLs of bears are hit and they're kicked out of the market, while bullish pending orders are hit as well and so bulls are sucked into the market putting them in a losing position. That's also the reason why the more a S/R line is hit by the market, the weaker it actually becomes (not stronger as many people may think). The following picture shows a trap on each side (not news related!):

Also drawing S/R lines or zones need some exercise. Switch to one or two tfs higher to have an overview of important levels. If you have issues to see the levels, switch to the Close line chart.

That's how the rough model looks like. 

After you mastered the art of drawing them the market will look much less chaotic for you. It has a reason that the market moves as it moves.

A good video I can recommend is from Rayner Teo:

Happy trading.
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