Was asked to share for people who may be new to trading analysis.
Great idea, everyone shares for their own ideas, why not.
Great idea, everyone shares for their own ideas, why not.
Comment:
Support and resistance levels are a critical part of trend analysis because they are used to make specific trading decisions. The fact that these levels flip roles between support and resistance can be used to determine the range of a market, trade reversals, bounces or breakouts. They help in identification of a trend reversal.
For example, you might identify an upcoming support level and decide to start buying the stock as it approaches the said support knowing that it will likely rebound higher. The support and resistance levels test and confirm the trends and should be closely tracked by every trader. These levels exist due to an influx of buyers and sellers at key junctures.
So, the question arises- what does support and resistance really mean?
WHAT IS A SUPPORT LEVEL?
A support level is a level where the price tends to find support as it falls. This means that the price is more likely to “rebound” from this level rather than pierce through it.
However, once the price breaks down this level, it is likely to continue falling until meeting another support level .
WHAT IS A RESISTANCE LEVEL?
A resistance level is the level where the price tends to find resistance as it rises. This means that the price is more likely to “bounce back down” from this level rather than break through it. However, once the price pushes above this level it is likely to continue rising until it meets another resistance level .
TRADE SETUP:
*BUYING THE SUPPORT
The price gets rejected from the resistance level for a few times. Finally, after a good attempt the price manages to breakout from the resistance. Don’t buy yet, wait for the retest since it can be a false breakout and you may end up losing your money. After a successful retest, open up your long positions. Make sure to lock in profits on the way up.