Whether trading with the trend or against the trend, we are all looking for key positions.
Once the position is found, traders just need to wait quietly.
The key position in the transaction is the "support and resistance level". Regardless of the technical form or the indicator, we are trading around this position. Therefore, studying the trading strategy of support and resistance levels is the key to improving trading judgment.
Today, Hui Classroom will share with you the trading strategies related to support and resistance levels, including how to find and verify them.
5 Ways to Find Support and Resistance Levels - wikiHow
If you use candlestick charts, then the support and resistance levels are not the same position according to the actual market situation, but it is more appropriate to express them in areas. Because the upper and lower shadows will always fluctuate up and down to interfere with your judgment.
Therefore, it is better to use the line chart to see the support and resistance more clearly, but when actually trading, you still have to look at the candle chart. Only by seeing the price fluctuations of a single K line can you control the stop loss.
Tools, indicators, and patterns that can determine highs and lows can all be used to determine support and resistance levels. The five methods are summarized below.
① Trend lines and channels
As shown below, trendlines and channels are the most common ways to identify support and resistance. A trendline that has been verified by more highs and lows indicates that it is indeed stronger. A trendline connecting lows can act as support, and a trendline connecting highs can act as resistance. Channels are combinations of trendlines.
②Fibonacci
Several important golden sections of Fibonacci retracement lines are shown in the figure below. The Fibonacci retracement line drawn in an upward trend acts as a support line, and the Fibonacci retracement line drawn in a downward trend acts as a resistance The role of the line.
In the figure below, the most important dividing lines of 50%, 38.2%, and 61.8% did not support the strong decline in market prices. The 23.6% dividing line played a strong supporting role. After the market price oscillated three times at the 23.6% dividing line, it was finally pierced by a big black candlestick. The 100% dividing line finally supported the short-term uptrend after several false breakthroughs of the long lower shadow in the first price rally, but finally, with the 3 crows pattern, this support line was also broken.
③Technical indicator Bollinger Bands
The upper and lower tracks of the Bollinger Bands are drawn based on the maximum and minimum price fluctuations. Naturally, the upper track can act as resistance, and the lower track can play a supporting role. As shown in the figure below, it can be seen that the upper and lower rails of the Bollinger Bands still have strong support and resistance.
④ technical indicators zigzag
The Zigzag indicator is obtained by connecting the high and low points of the market price in a certain period, so directly connecting multiple high and low points in the Zigzag indicator is the resistance and support line. As shown in the figure below, similar to the trend line, there are also breakthroughs and false breakthroughs.
⑤Technical indicator MA
The simple moving average, if it is below the price, indicates that the market price is in an upward trend, and if it is above the price, it indicates that the market price is in a downward trend. So it can also act as support and resistance. As shown in the figure below, the 55 MA first acts as a resistance line, and then crosses the market price and becomes a support line.
The above are the five commonly used ways to find support and resistance. Of course, there are many techniques or methods that are essentially similar in the trading market, and so on, all of which can be used. But you may also find that there are some accuracy problems in either way, such as breakthroughs and false breakthroughs, and the non-uniqueness of support and resistance lines.
Regarding the non-uniqueness of support and resistance, there is indeed no standard answer. Even if the same method is used, the support and resistance judged by each person may be different. My suggestion is to use the two methods to verify each other, as long as the method is not wrong, stick to your method and judgment.
Let's talk about breaking through support and resistance levels.
Validation of support and resistance levels
Support and resistance levels can be verified, which is a prerequisite for trading, especially for left-handed traders.
The various judgment methods mentioned above basically may have false breakthroughs, that is, they can actually be carried, but the long shadow line will mislead you that the support and resistance levels are broken.
Various methods have corresponding verification methods. For example, when the channel breakthrough distance has the width of a channel, it is considered to be a valid breakthrough.
Most of them can see the strength of the market trend, what can reflect the strength of the market trend? The length of the entity of the K-line chart, the length of the shadow line, and the shape of the K-line. If the market trend is too strong and menacing, I am afraid that the support and resistance will break.
If it is applied to the top and bottom patterns, the breakthrough of the neckline is generally used as the entry judgment, and the breakthrough of the high point or the low point is not the main point.
Remember that pinbars (candlesticks with a short real body and a long shadow) are often signs of false breakouts.
After the support level is broken, it may change roles. As shown in the figure below, the original support line is turned into a resistance line after being broken.
It is also easy for us to think of using the closing price of the next K line to verify the breakthrough of support and resistance, but the fact is that this method is not accurate enough, and the market price will not keep its promise.
As shown in the figure below, after the support line was broken by a big black candlestick, the closing prices of two consecutive K-lines were all lower than the support line, but it turned out to be a false breakthrough!
Therefore, first of all, you can study more methods to see through breakthroughs and false breakthroughs in your own trading system. In addition, you should also emphasize setting a stop loss with sufficient space.
The above are related trading strategies on support and resistance levels. In fact, any transaction is carried out around the high and low points of the market price. If you master this core, you will be able to truly feel the relationship between market price fluctuations and transactions.
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