Today, I will share some problems that people often make when looking for support and resistance levels, and help you avoid and accurately find support and resistance levels.
1. Don’t pursue accurate marking of important price points
Some perfectionist traders always hope to find support and resistance levels that perfectly correspond to the examples in the book. But the market is always surprised:
The resistance level of the NZD/USD daily chart above is close to the textbook perfection, but it is still impossible to mark the resistance level in an accurate way. Resistance levels turn into support levels as prices retest, but even here, the market doesn't perfectly follow important levels. Because the market is full of power games and is changing all the time. In fact, we don’t need so many important price levels in our charts. A simple chart with reasonable logic only needs one important price level. Our purpose is to use important price points to help understand the chart, and marking price points is not the purpose.
2. marked some price points that hinder market analysis
This kind of problem is relatively serious. Where and how you mark important support and resistance levels will have a great impact on how you view the market.
In the GBP/JPY daily chart above, the transaction analysis is okay, but how to look at the chart is the problem. The pair is rising, making higher highs and higher lows, and the average is also rising, acting as a dynamic support. The price has a bullish retracement bar, which is a textbook perfect buy setup. But some traders will think that according to the recent price analysis, there is a resistance level here, so the price has no more room to go up, so they get out of this good deal. His worry may be justified, but don't forget that in a trending market, there is always a resistance level above the price, and there is always a support level below the price. When a trending market keeps making new highs or new lows, these resistance and support levels often get knocked out. In a strongly trending market, don't be intimidated by potential support and resistance levels, be conservative and place stops around these key levels.
3. Overanalysis
For example, let's take a look at the analysis of the following dear friend:
Typical over-analysis, in fact, if only one or two important price points are marked, maybe he can find the information he wants faster. In intraday trading, especially in short time periods, the transaction pays attention to speed, so there is no need to spend time marking those obvious price points. The same goes for the 4-hour chart. Just mark one or two important levels and move them up or down as the trend changes.
4. Mark important price points with a casual attitude
You must understand why you need to mark the key level price, instead of marking the important price with a casual mentality. When I do my own analysis, I look at the market from a medium-term perspective, such as looking at the daily chart from the weekly chart, which is more clear. I don't need to mark every price I see, what I need is the price related to the current analysis, identify the weekly support and resistance levels, and then analyze it together with the daily chart, as shown in the figure below:
(Translation of the above picture - left text: This price seems to have no reason, but it is actually marked after the weekly chart analysis. Right text: This is another price, which is difficult to identify on the daily chart, but on the weekly chart. Easy to find.)
The above two prices are important because they come from my medium-term analysis, which is a difficult price to determine on the daily chart. Therefore, be careful when labeling key price levels, only need to label the important support and resistance levels that are relevant to your analysis.
In the end, the market is so big that there is a solution to any problem, and there are a thousand ways to mark support and resistance levels. Hope the above sharing can help you solve your trading problems.
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