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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 fail.
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 off 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.
Note: If you didn’t understand the concept yet, don’t worry this is the basics you will understand everything later easily.
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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- Now, once you have signed up you will land on the Olymp Trade dashboard.
- Click on the Indicator button
- Select the Horizontal line from the menu.
- Now, what you need to do is find the right spot.
Place the Horizontal line to at least two lows in case of Support and similarly, two highs for resistance lines. as given below.
- For more clarity, you can change the colors of support and resistance lines.
Just click on the pencil icon and choose the color.
Here, I choose green for the resistance line and red for 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 candles 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.
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