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SUPPORT & RESISTANCE trading strategy: part-1

In my daily market updates each day, I draw the key levels of support and resistance that plays significant role for price movement. As traders/investors drawing support & resistance is a very important task to complete while starting our analysis for the day. Since this is one of the major & most important part of my analysis & so i have lot of information to share with you hence I’ll be explaining this topic in 3 different parts. Today’s part will be regarding some basic ideas of knowing support-resistance & how to find these levels on charts.

 

       I’ll be explaining below topics on part-1 :

      1) What is support & resistance level & how to find them

     2) What is key support & resistance level & how to identify them

     3) Importance of support & resistance as trading level

Hopefully this article will turn your way of trading once you explore this part of technical analysis.

Lets begin……..

Drawing support/resistance is quite easy if you know how to read the price behaviour in the market. There should only be two areas marked on your chart – one is for support & other is for resistance.

1) What is support & resistance :

 SUPPORT :

Support is a point of price from where price turns up or price reverses from a downmove to upmove. Here is an  example below of supports on chart:

RESISTANCE :

Resistance is a point of price from where price turns down or price reverses from an upmove to downmove.On the same above chart I’ve drawn resistance points to understand the concept better. Have a look in below chart:

 Now lets draw both support & resistance points on the same chart we discussed above & check below how it looks:

Now , I hope we can understand & recognize SUPPORT & RESISTANCE.

If you are a regular follower of my blog,you must have noticed I always mention “key support/resistance” on my chart analysis.Till now what I discussed in first point is known as general support/resistance & hereon we’ll be discussing the term “KEY support/resistance”.

Key support:

whenever price pushes up from a price area for multiple times, we call it key support.Check the example chart below:

Key resistance :

whenever price pushes down from a price area for multiple times we call it key resistance.Check the example chart below:

Now here is a chart example I’m showing both key support & resistance on charts & this is how our charts should look like while trading as I stated at the start of the article.Now we have two levels to trade on chart – key support level at 81 & key resistance level at 91 . Have a look below:

 so now two things are clear :

we can have four things marked on our chart :

1) a single support point ( when price turns up once from a particular price area )

2) key support area ( when price turnd up multiple times from a particular price area )

3) a single resistance point ( when price turns down once from a particular price area )

4) key resistance area ( when price turns down multiple times from a particular price area )

now lets move to the next topic : how to trade this areas

Once we find a single support point or a key support in a particular price area then that price area becomes a significant level for price to react.Once a single support or key support is formed, mark that area with a horizontal line(like how i marked in above & below charts) & wait for price to reach that price area again to have a BUY entry.

Remember this : we always buy on SUPPORT

n below chart due to mentioned point 1 & 2 where price rejecting up from the same area, the level becomes key support hence on point 3 when price tested that same area we can look for a buy entry.

 Once we find a single resistance point or a key resistance in a particular price area, that price area becomes an important level for price to react.Once a single resistance or key resistance is formed, mark that area with a horizontal line & wait for price to reach that price area again to have a SELL entry.

Remember this : we always sell on RESISTANCE

In below chart due to mentioned point 1 & 2 where price rejecting from same area, the level becomes key resistance hence on point 3 & 4 when price tested that same area again we can look for a sell entry.

Now once we buy in support(on 3) , target should always be the next upcoming resistance.Have a look below:

Once we sell in resistance(3 & 4), target should always be the next upcoming support.Have a look below :

I’ve attached a quick video to show you how to draw support resistance lines on charts related to today’s topic discussions :

Check out the 2nd part of “support & resistance trading strategy “-  HERE

December 4, 2014

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