Lesson 2: Support & Resistance ZonesSupport an resistance zones are critical in the market. These are the juicy spots from which market-makers get to feed themselves immensely. Many traders get trapped in these zones. Buyers are trapped when the market-maker's intention is to SELL and sellers are trapped when the intention is to BUY.
It very important for ordinary retail traders like you and I to be able to play the game the market-makers plays at SUPPORT AND RESISTANCE levels. This is how one can truly profit from the market. There's a lot of price manipulation going on at the S&R levels.
Market-makers are also in this business to make money. Unfortunately it is the retail trader who fattens their pockets. The good news is that this can be avoided through PATIENCE, PROPER RISK MANAGEMENT ANN HIGH LEVEL OF TRADING PSYCHOLOGY.
Things to avoid doing at SUPPORT & RESISTANCE levels:
1. Trading BREAK-OUTS instantly (a sure way to be caught in the opposite side)
2. Placing STOP LOSSES right on the zone (whipsaws will destroy you)
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I hope this bit of education will help you trade carefully at critical SUPPORT AND RESISTANCE ZONES.
HAPPY TRADING!!
Resistancelevel
Position & Swing Trading: Weekly ChartsIf you're position or swing trading, it is a MUST to study weekly charts to confirm:
1. IF a bottom is developing
2. WHERE the bottom will complete
...to plan trades with strong reward/risk ratios.
For example, let's take a look at EGLX, which had a gap up at open on its earnings release:
1. Note that today's gap up is from a lower low in the downtrend. This particular bottom is not confirmed just yet. When it makes a higher low is when there will be lower risk for an entry.
2. The first resistance is at 3.27, but there's stronger resistance at 4.44--once the stock's price sustains that level, then the bottom will be complete, which is the best time to consider position trade entries.
Both resistance levels should be considered for swing trading potential...
First ask: "Are there enough points to gain from your entry point to warrant the risk of the trade?" If no, then move on to the next opportunity; maybe put an alert at the next resistance level to revisit. If yes, then which resistance levels are likely to cause profit-taking?
A step-by-step checklist that looks further than the entry is important for not giving back profits just as soon as you make them. Learn more at my website.