Sunday, 8 February 2015

Support and Resistance

As a day trader to remain competitive, I feel I need to first understand the market structure and dynamics well, as well as I need to learn how to be flexible to adjust to the shifting market conditions.  Understanding the concepts like Support and Resistance, Trend, Breakout, Breakout Failure, Trend Reversal, Range, etc. would help understand market structure and dynamics better.

Today I am going to start with recording my notes/beliefs regarding Support and Resistance levels, in general.

SUPPORT AND RESISTANCE

Support level on the chart indicates demand and Resistance indicates supply.

To recognize a support or resistance level, look for a significant trough or peak on the chart or a certain level where prices repeatedly halted the movement and reversed.

Remember,
In an up-trending market, resistance levels will often break and in a down-trending market support levels will often break.

Most often price reversals don’t occur at exactly the same, precise levels, but rather in areas.  These areas may be called as a support/resistance zone.

Resistance can become support and vice versa.

Prices tend to enter support/resistance areas and halt their momentum, occasionally even at a single level.  Most often they will not breakout through the horizontal support/resistance area, but in some cases a breakout will occur, which usually dramatically shifts the current market situation.

To assess whether a support/resistance level is still valid is if the price gets accepted below or above the respective level. If prices almost instantly pull back, then most likely the market is just testing this level and it is still credible.

The longer a support/resistance level holds and the more the failed attempts to break it, the stronger the move will be after the breakout finally occurs.

If the price keeps testing a particular level more and more times, it tends to become weaker and eventually it will be broken.


2 comments:

  1. Dear Mr.Dave

    Welcome back.
    I was eagerly waiting for you. I have been told by Karhikeyan (MyTrades) about you.
    I am new to Nifty trading. Need your guidance always.

    Regards
    Raju
    http://rajudptrades.blogspot.in/

    ReplyDelete
    Replies
    1. Raju

      Thanks for the visit and comment. Wish you all the best.

      URD

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