Support And Resistance Strategy

Support and Resistance strategy

Support and resistance points are very important indicators in forex and CFD trading, there are many applications of trading support and resistance levels and not only in forex, but also in other financial markets and in this article, you will discover the levels or points of support and resistance “S&R” and the psychological element of support levels Resistance and Fibonacci to find support and resistance points, Wolf waves and more as well.

Regardless of whether you are day trading or long-term trading, the concept of support and resistance is one of the basic concepts that must be understood when it comes to technical analysis.

It reflects the mood of market participants, with support acting as a price floor and considered as a demand area, while resistance acts as a maximum and considered as a supply area.
There are different forms of support and resistance, and most of them depend on the interaction of price with technical indicators. Although support and resistance are simple concepts, it is very difficult to master and understand their different types due to changing market conditions.

Simply put the definition of both support and resistance is as follows:

🔸Support: It is the level below the price movement, from which the price bounces up after a previous downward movement.

🔸 Resistance: It is a level located above the price movement from which the price bounces down after a previous upward movement.

It is possible for the price to exceed the levels of support and resistance, which is called a break, so roles can be exchanged between support and resistance. Broken support = new resistance and broken resistance = new support, example:

🔸 on the downside: we expect the price to break the support levels.

🔸 on the upside: we expect the price to break the resistance levels.

How to identify support and resistance points:

There are many ways to identify S&R points and how can traders distinguish the most important levels of support and resistance, and above all what support and resistance points should be considered important? What is the concept of supply and demand:

🔸If a trader decides to place all the lines on the chart, they will not even be able to see the price on the chart because the price will simply fade behind all these lines, then the traders must choose the best support and resistance levels or else the chart becomes unreadable and usable.

🔸 Support and resistance points become valuable only when the market actually respects these levels in the majority of cases and if support and resistance levels are used only occasionally or even rarely, then there will be no benefit to the trader to place them on the chart.

🔸 Forex analysis looks at potential market movements for the next month or year, and even if it is noticed that the market level changes from its level today, traders never cancel their orders, so these orders and orders remain open waiting for the market to return to its required levels and those orders and deals the open distorts the market’s march and brings back price movements, which in turn will affect the levels of support and resistance in various time frames.
Types of support and resistance on trading charts

There are several types of resistance and support levels, and these three combinations are equally useful, although traders tend to develop one or two of them. The main levels of support and resistance are:

1/ Fixed support and resistance levels: they are the points of support and resistance that do not change and remain in effect at the same level, unless the price breaks and penetrates through them. Examples of fixed levels of support and resistance include the following:
🔸 Rounded “psychological” price levels.
🔸 Annual maximum and minimum.
🔸 High and low candles.
🔸Opening and closing candles.

All these levels do not change, they remain the same no matter how the price moves, the 1.10 level will remain 1.10 and will not change to 1.1050, Forex support and resistance levels are approximate and not exact areas. Although the 1.10 level will not change, its effect is not noticeable only at 1.10, in fact the price can bounce and rebound already near 1.10 at points like 1.0975 and 1.1025 and it should be taken as a guideline rather than for sure.

2/ Dynamic levels of support and resistance: they are support and resistance areas that change every time a new candle or any other price unit reaches this level and the level of support and resistance is recalculated at it, and the trader uses the new level for his decisions and not the previous level, examples of support and resistance levels The dynamic is:

🔸 Moving Averages Indicator
The moving average indicator acts as price support or resistance, used by many as a measure of the overall health of the market and moving averages may also be useful when trying to identify trend reversals or pivot points.

🔸Ichimoku indicator The Ichimoku indicator allows you to track trends and identify price action at a glance, and one of its benefits is to locate minor and major support and resistance.

🔸Parabolic SAR Indicator The Parabolic SAR indicates a price-based trading system that shows trend lines and trend channel lines, as well as providing support and resistance points.

3/ Semi-dynamic levels of support and resistance: are a kind between static and dynamic levels and dynamic support and resistance levels change in Forex and static levels remain in place, i.e. semi-dynamic levels of support and resistance change in a fixed proportion.

An example of a semi-dynamic level of support and resistance is the trendline, which changes at a constant rate per candle. If placed at an angle above or below, the trendline will move at the same rate in that direction with each new candle. Semi-dynamic levels change only at a fixed rate per candle, while dynamic levels change at a non-fixed “elastic” rate.

You can take advantage of the services provided by TNFX that include technical analysis in addition to determining levels of support and resistance, and one of the most popular technical analysis tools is:
🔸Trading Central
🔸 AutoChartist