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The significance of support and resistance is huge for traders who depend a lot on technical analysis. Lines of support/resistance helps to identify the possible trend or reversal.
Support and Resistance Overview:
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.
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 levels at Olymp Trade?
Drawing support and resistance lines is damn very easy. Firstly log in to your Olymp Trade account. Next, 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 levels 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 levels
Trading with Support and Resistance levels 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 what you need to do is remember this thumb rule:
If the candle is near the 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 support/ resistance 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.
I have covered everything about support/ resistance by now and you must have understood How to trade and analyse the trend via the same. The best way to understand any Olymp trade winning strategy is by practising the same in the Olymp Trade demo account. So, just practice and do comment if you found support/ resistance helpful or not.