Why are support and resistance levels so magical?

Thank you Summer Landscape for the invitation. The pressure and resistance levels are what traders often pay attention to when making transactions, but is this so-called key point really so magical? Is it possible to make long-term profits by trading at resistance levels?

In fact, the reason why we define it as pressure level and resistance level is because we have found a certain point in the historical market as a reference, and then we say that when the market has pressure or resistance near this point, we can call this reference Point "anchor".

Pressure points and resistance points are sometimes effective, because many traders, including some large financial institutions, are staring at this anchor. When the market price is close to this reference point, everyone starts to move around. For example, when the price rises close to the resistance level, many people think that the resistance Effective people think that the previous reference point may be indestructible, so they start shorting. We all know that if a transaction can be closed, there must be a counterparty to close with you. So since the short sale can be closed at this time, it must be done. Many people are taking over your short orders, so what do these long people think? They are a group of people who like to make breakthroughs. They believe that a trend must start from a breakthrough, so at this time, a fierce competition has begun regarding whether this key reference point will rebound downwards or break through with the trend.

In the end, of course, there will only be one result. Either the breakthrough fails and the market goes down, which means that the short-selling funds or the number of short-selling people have a huge advantage, or the breakthrough succeeds, and a wave of rising may start. So if you have to make orders according to the pressure resistance level, which one is better? Which has a higher success rate? I think there is no answer.

Why is there no answer, just open the historical disk to find it, and compare them one by one to see whether it is better to break through or pull back. This is impossible. Although the historical market will not move there, you still can’t count it, because first of all, there are too many anchor points, and this thing itself has a very strong nature of subjective judgment. The anchor points seen in history are not necessarily the same as the anchor points to be defined in the progress of the market. You will filter out many anchor points through the naked eye and thinking. In the end, even if you count which one may be better, it is just your subconscious The ones that can be accepted are better, but in fact, the result you calculated may not be more advantageous. Therefore, subjective things cannot be counted, just like when you are trading, you may not necessarily recognize which pressure point is effective.

Although we cannot count which one has a higher success rate, according to the fact that the market is uncertain, in a long time span, the two should have similar probabilities, so there should be no one that has more advantages .

In this way, is it useless to rely on the pressure resistance level to trade? No, because we only study it from the perspective of entry. From the perspective of exit, there will be differences between the two moves, and differences will produce different results.

First of all, let’s look at the entry method of doing reverse when encountering pressure resistance. I do not recommend this method, because this kind of reverse thinking is a typical "frame thinking". Your entry is because you have encountered Resistance and pressure, then you will inevitably be affected by this when you want to exit the market. When you hold a position and encounter the market near the pressure resistance, you may not be able to hold the order. Then when you exit the market , You can’t get the huge profits brought by the trend, which is why most people can’t hold the list, so if you want to adopt this kind of frame thinking to make profits, you must have an advantage in the correct rate of transactions, and you must also It means that your winning rate should be high, which means that the pressure resistance you judge is very "accurate", but I have just demonstrated that because of the uncertainty of the market, most of us should judge the correct ratio of pressure resistance in the end. They are all 50-50. Even if you use multiple indicators or theoretical aids, the probability will not change much, because all indicators are calculated from prices, and no advantage can be found from the most original price. There is no advantage in products, so I do not recommend this reverse approach.

The other is the method of breaking through the pressure resistance level. This method has advantages in terms of exiting the market, because after a successful breakthrough, you can get a long-term trend of profit. You only need to set a rule of exiting the market after the profit is withdrawn. The advantage of this kind of logic over framework thinking is to let profits run. Of course, it is not easy to break through successfully, and the huge profit-loss ratio brought by the profits obtained by the general trend can make up for this shortcoming.

The transaction itself is a trade-off, and any method has its advantages and disadvantages. All we have to do is to judge through the logic of thinking to make his advantages overshadow the disadvantages, and then accept the shortcomings that arise during the application process. That's it. .

Are you satisfied with this answer?

Thank you. Brent Penfolds said in his "Trading Bible: Keys to Profitable Trading of the System" that trading is very simple, after all, you only need to remember the support and resistance levels. All systems based on trend trading cannot bypass support and resistance levels, they are so "magical".

First of all, you need to understand what support levels and resistance levels are. In a word, such positions are price-intensive trading areas, so most effective support levels and resistance levels are a long period of oscillating market, and their duration is not long. It will be shorter than the previous unilateral market. Compared with the unilateral market area, the trading volume at the support level and resistance level is huge, and there are many people involved. When the price reaches this area, more people will face the problem of stop loss or liquidation, so this position attention is even greater. When the market reaches this position, if it breaks through, it is a confirmation of the previous market. If there is no breakthrough, it is likely to cause a reversal of the previous market. But you must not think that you must rebound when you reach the support level, and you must go down when you reach the resistance level. The support level and the resistance level will be broken, but it will be more difficult than breaking through pure highs and lows.

Of course, the single highest point and lowest point can also become a resistance level and a support level. This position is opposite to the shock-shaped support resistance position mentioned above, and it is the area where price transactions are sparsest. They can also play the same role, but this effect is generally caused by psychological factors, but everyone feels that the price has deviated far from the core area, and the original market is difficult to continue. Therefore, this position is generally not very firm. As long as the market price reaches this position again, a breakthrough is likely to occur.

Traders should know that market prices are accumulated by countless people with real money. In the state of unilateral market, the number of reverse traders is rare, and they become unnecessary victims of market development. But at the key resistance level, there are a large number of short orders here. Their original short profits will gradually return to zero as the market rebounds, and losses will occur immediately, so more short sellers will join in to prevent the bulls from pushing the market forward. to their stops. If the long side wants to continue to push the price, it must use more money to eat the short side's list. The long and short sides will form a stalemate at the resistance level, and the market will pause until one side exhausts its strength. Or the multi-party breakthrough successfully blows up all the positions of the short side, and the short side cannot organize its strength again for a while, and the market will develop rapidly after the breakthrough; or the short side successfully defends and uses more funds to wipe out the chasing long positions​, and the market continues again or the strength of the two sides is balanced, the battle situation falls into a stalemate, and there is a period of shocking market, which exists as a new resistance level.

If the long and short sides are compared to two armies, the key support and resistance levels are their respective trenches, and those isolated highs and lows are the foxholes on the battlefield. If the market finds this position, it is a charge initiated by one party. If it is stronger, it will break through the opponent's defense line and establish a new defense line at a deeper position. If the charge fails, it is easy to be countercharged by the opponent and lose its own position. . Every breakthrough of support and resistance levels will be accompanied by massive losses or even bankruptcy for many traders, and there are also quite powerful entities in the world that can hold the market below key prices for months or even years.

My indicator is macd plus 5-10-20-40-60 moving average. The goal is to make 2 types and 3 types of buying points formed by 5-10 crossovers. Combined with the crossing of the yellow and white lines of macd, the eight-character mantra summed up by myself: 0 up to go long and 0 down to go short.
And I don't look at the support and pressure levels that everyone often says, the reason is this, when the momentum of the trend is insufficient or strong, the 5-10 line will have a corresponding crossover. is my entry and exit position. Insufficient kinetic energy, go against the fork. When the trend starts, follow the trend with 2 types and 3 selling points. It is often said that the support pressure is micro, and there must be multiple coincidence points of the K-line at a certain level. Of course, the crossover of the moving average will lag behind the reaction of the k-line, and the stability will be more sufficient. Gains and losses are inevitable events.
The system suits you just fine.
I have always believed that discussing technology is not as good as spending time refining and perfecting yourself.
Believe in yourself to have eternal life.
Simplified 2 types and 3 types of buying and selling points in the figure below, for reference

If a product is priced at 5 yuan, everyone is willing to buy it, but the sellers feel that there are so many people buying it, and the price is too cheap, so they are reluctant to sell it, and decide to raise the price to 6 yuan. At this time, they find that there are still many buyers. Continue to raise it to 10 yuan. At this time, the buyer's willingness to buy drops, and the number of buyers starts to decrease. The seller starts to drop the price in order to ship, and then the price drops to the previous 5 yuan. When it starts to repeat, So 5 yuan and 6 yuan became support, and 10 yuan became pressure. This range is the current market recognition of the value of the commodity. The technical manifestation is shock. What about trends and breakthroughs? It is a short-term imbalance that occurs when some other factors appear and change the attitudes of buyers and sellers. This short-term may be very fast, or it may be n days. Another shock means that the market has found a new value range. This is why it is often said that the shock time exceeds the trend time. This includes the financial market price formation mechanism.

Suppose someone is doing transactions in a closed system. 1 has an apple in his hand. Ten people in the system are unconditionally optimistic that the apple will appreciate in value. 1 sells the apple to 2, and 2 adds one dollar to sell the apple to 3, and so on.

It is not difficult to find that if the system itself is closed, the game of selling apples cannot go on forever. When 10 wants to sell apples, the price of apples is the original price + 9, and then 10 finds that he cannot sell them.

This +9 price is the resistance position. If there is no new energy added to the system, the price can only fall back and cannot rise. So the +9 price is like magic.

You can't play with yourself, you can't get rich by selling an apple to yourself (imagine this closed system as an independent entity).

Whether it is the concentration and unity of the chips or the disagreement of the game, this is the performance of the price at a key position, and the main reason for the support and resistance is that the power to push the price in the current system is exhausted.

This force, or energy, determines the price, so changes in price can predict the direction of energy. Because energy is unknown and chaotic, the key point is a range before it comes out, and it is unique in reality only after it gets out.

We cannot know where the energy that pushes the price forward comes from and how strong it is. Support and resistance are described for us. We cannot know where the new energy comes from and what direction it is. Changes in the price position give us the conditions to predict energy and clues.

So support and resistance are extremely important in any trading strategy or trading theory.

Having said so much, in fact, the most useful sentence is "If there is no new energy added to the system, the price can only fall and cannot rise." The second useful thing is that "the key point is a range before it is out, and it is unique in reality only after it is out". I hope it can inspire newcomers to trading.

Generally speaking, it is the result of the joint action of interests and market psychology.

Let's take an example of a rising trend, and vice versa.

In a wave of rising prices, when the price reaches the previous resistance level (that is, there are a lot of selling orders at this position in the previous period), because no one knows whether it will break through, traders who are long at low positions will choose to sell to close their positions. The bag is safe to prevent the cooked duck from flying away, which caused part of the short pressure.

On the other hand, bearish traders will also choose to enter the market to short at this position, because there were a large number of selling orders at this position in the early stage, which will produce psychological hints at this time, which will increase the pressure on short positions.

Therefore, when the resistance level is reached, even if there is no reversal, there will generally be a callback; the longer the resistance level is suppressed, the more effective it will be, and if it is broken through, the outbreak will be more powerful. Of course, there are also accidents, which are commonly referred to as false breakthroughs.

As for whether it is easy to use if everyone believes it, or it is easy to believe it, this is actually a chicken-and-egg problem. In short, they should complement each other.

You understand it that way, and what you see can be seen by others. When everyone has formed support/resistance at a certain point, then this is the market sentiment effect. It is a kind of sympathetic emotion generated by the public.

​For example: one person (retail investor) running the red light cannot drive a group of people (public investment sentiment/institution) to run the red light, but a group of people (public investment sentiment/institution) running the red light can drive many individuals (retail investors) to run the red light together.

The individual refers to our individual investment, and the public refers to some holdings of large amounts of funds or market sentiment (such as some data or events). ​

In the example mentioned above, running a red light means breaking through a support or resistance level​. The public can drive individuals, but individuals cannot drive the public.

The truth is so easy to understand, why do we need so many bells and whistles to understand it? ​

Personally, I think the method of making orders at support and resistance levels is good, but it is not so magical. In fact, your profit is only because you have identified the market rhythm and can keep pace with the market. After all, the support and resistance positions you see need to be recognized by the market, otherwise you can only lose money. The direction that most of the total amount of funds in the market thinks is the direction of the market.

The road is simple, any indicator can be profitable, the key is whether you can filter the loss part and find out the rhythm of the market.

Common methods of judging foreign exchange support and resistance levels:



1. Moving average moving

average has two functions in technical analysis of foreign exchange trading: one is to indicate the direction; the other is to provide the basis for judging support and resistance levels. Because the moving average is the average closing price of many days, it has a corresponding support and pressure effect on the exchange rate fluctuations. When the exchange rate pulls back to the moving average, there are often foreign exchange traders who will buy the bottom and grab the rebound, thus forming an obvious support there.

However, when using moving averages to analyze short-term support and resistance, it is generally necessary to comply with the principle of large-cycle small moving averages and small-cycle large moving averages. For example, if you look at the daily line, you generally pay more attention to the resistance of the 5-day, 10-day and 20-day moving averages. If it is a 60-minute chart or a 15-minute chart, it is generally based on the 100-200 period moving average.



2. Bollinger Bands

Use the Bollinger Bands to judge foreign exchange support and resistance levels, usually by observing the upper rail, middle rail and lower rail.

Generally speaking, the Bollinger Bands are in the flattening stage, and the changes are small. At this time, the support and resistance levels are relatively stable, and it is also the best time for selling high and buying low. However, investors should also pay attention to setting a stop loss when the Bollinger Bands are flat to prevent breakthroughs.

In addition, when using the Bollinger bands to judge, it is necessary to choose a larger period as much as possible, such as a 55-period, or even a 100-period Bollinger band.



3. The golden section line

The golden section line is the most common and effective way to find support and resistance levels in foreign exchange trading.

Just open the trend chart, use the golden section indicator, use the low point as the base point, connect two relative high points and low points within a period of time, and judge the support point of the price according to the point corresponding to each golden section line. The judgment of the pressure level is based on the relative high point.

Among them, the golden section of 38.2%, 61.8% and 50% is the most important

It depends on how you approach this question! The first is capital. All transactions are completed through real money buying and selling relationships. This is also the reason for price fluctuations we see on the disk! A stream of funds entering the market and forming an effective breakthrough proves in disguise that the inflow of funds is strong and forms resistance. When the price returns to the range of this fund, there will definitely be a rebound. This is deterministic! Starting from the psychology of the crowd, most people have reached an agreement here before and successfully guided the price out of this range, and there must be a rebound when they come back here. There are deterministic trading opportunities in the capital market. Of course, this should be based on the nature of the market and a conclusion drawn through logical reasoning! When you have been trading for many years and still cannot make a stable profit, come to me, I may be your last straw!

Because of the consistency of behavior, everyone somewhere thinks it's long or empty. Sometimes big money can also create such support and resistance levels.

Because it is the expected position of many people, there will be transaction differences for the key position, and there will be market reaction price behavior

When the support is reached, those who haven’t bought want to buy actively, and those who are short take profit and passively buy, so it’s amazing~㊗️God

God? No God! All support and resistance levels can be used to generate support resistance and can also be used to break through! God? no god!

Many people will react after using it too much. Everyone agrees that this is a reversal or a rebound. The essence of trading itself is the combination of long and short games. Let’s understand well what is consistency and what is momentum.

above.

Because of the expectations of many people, when the price moves to this position, many people choose to settle down or enter the market cautiously, resulting in insufficient power for the price to continue to move

The more people use it, the more effective it is.

Let me just say that traders with high annualization and low retracement have their own trading system of support and resistance levels. If you do not judge the support and resistance levels to trade, you will have no soul. The understanding of species is also not satisfactory.

Viewed horizontally as ridges and sideways as peaks, the distance and height are different. This is the description of the market by operators with a big picture, and the description is all-round and three-dimensional. Rather than using a few simple indicators can be expressed. This also reflects the overall quality of a person. Therefore, it must be talents with the same comprehensive quality who can comprehend, master and use it.

Regarding the question mentioned by the subject, what is miraculous and effective is not necessarily only the support and resistance levels, but the result of the complementarity of various forces, such as CYC (Cost Average), etc. It is a good thing to have an effect on trading, and I also hope that Keep up the good work!