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Well, Today in this article. I am going to talk about one of the most popular trading strategies. i.e Support and Resistance.
Support and Resistance are undoubtedly one of the most powerful strategies. and How to draw Support and Resistance lines is one of the most important skills that every trader must learn.
What is Support?
Support in Hindi we call it सहारा. and as the name suggests it is the trendline or a price level that provides support to the commodities or stocks as the price tends to fall.
The thumb rule of support says, If the commodities, shares price is being dominated by sellers.
It is preassumed that the sellers won’t be able to dominate any longer once it touches the support line.
The price of the commodity will most probably bounce back up and the buyers will retain their position.
However, If the price has breached this level, by an amount exceeding some noise, it is likely to continue falling until meeting another support level.
What is Resistance?
Resistance is just the opposite of support.
Resistance or ceiling is a trendline or price level that provides resistance or acts as a ceiling that prevents the stock or commodity price to rise any higher.
The thumb rule of Resistance says, If the price of the commodity, shares go high or are being dominated by buyers.
It is preassumed that the buyers won’t be able to dominate any longer once the price reaches the resistance level.
However, Once the price has breached this level, by an amount exceeding some noise, it is likely to continue rising until meeting another resistance level.
How to draw Resistance and Support lines?
Drawing support and resistance lines is damn very easy.
Here, for illustration, I am going to use Olymp Trade to draw Support and Resistance lines. If you don’t have an Olymp Trade account Click Here or sign up from the form below.
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Click on Register
Lastly, enter your details like email, password and hit sign up.
Once you have signed up you will land on the Olymp Trade dashboard.
Firstly, Click on the Indicator button
Select the Horizontal line from the menu.
Now, what you need to do is find the two highs (bullish and bearish) for the resistance level. and place the horizontal at the same.
Similarly, find two lows (bullish and bearish) for the support level. and place the horizontal line at the same.
For more clarity, you can also change the colours of the support and resistance lines.
Just click on the pencil icon and choose the colour.
Here, I choose green for the resistance line and red for the support line
One more way via which you can draw support and resistance lines is using a trend line.
Similarly, click on the indicator button and select the Trend line from the menu.
You can place the trendline where you want to start and then extend it horizontally until the point where you want to end it.
How to Trade with Support and Resistance lines?
Trading with Support and Resistance lines is damn very easy.
- First of all, you need to select the currency. for instance, here I select EUR USD.
- Now, you need to draw Support and Resistance lines. and draw horizontal lines between the two.
- Once you have spotted the support and resistance lines. now you what you need to do is remember this thumb rule:
If the candle is near to resistance line it will bounce back down in an inverted v shape.
Similarly, If the candle is near to support line it will bounce back up in v shape.
However, If the candle has broken either the support or resistance it will continue until the next level.
See, the chart below.
See, point no.1 we can clearly see here that the candle is trying to break the resistance level, however, the resistance level acts as a ceiling, and then very soon the candle bounce back down.
Here, we can go for a SELL trade
At Point no. 2, The candle is successful at breaking resistance level but not long enough and then bounces back down. Here, we should wait and shouldn’t make any calls as there is confusion in the market.
At Point no.3, The candle, has once again broken the level and touches support level number two and could bounce up back very soon.
At point no 4, We can clearly take a BUY Trade here as the candle touches the support level and bounced back up.
So, this is the end of this article. I hope you found this article helpful.
This article was all about Support and Resistance, How to draw Support and Resistance lines, What is Resistance?, What is Support?, How to trade with Support and Resistance lines?.
Given below is the list of frequently asked questions by students.
What is the difference between Support level and Resistance Level?
Support acts as a supporting partner for buyers as it doesn’t allow the price to fall down any longer. Resistance is just the opposite of support.
Resistance acts as a supporting partner for sellers as it doesn’t allow the price to rise up any longer