20 Oct 2015

FREE FOREX EDUCATION - SUPPORT AND RESISTANCE




Support and resistance are the two of the most important technical analysis concepts. Here are some of the real life examples of the three golden rules explained in the video:


1) The more times a support or resistance level gets tested - the stronger it gets!
AUD/NZD DAILY

In the chart you can see a minor support. It has a little significance as we can find this kind of reversal on our charts all the time. It is the strong support or resistance levels we should be looking for as we can trade both - break or reversal.

2) The stronger the support or resistance level is - the stronger the followthrough after a break!
AUD/NZD DAILY

As a strong support level breaks, the following move should be also be strong as the stop losses from the long orders get triggered and there's a selling momentum. This is how we can usually measure whether the break is going to be legit or fake.

If the breakout candle have a long shadow or a small real body there's a large probability that it has been a false breakout and the price is going to reverse.

In the example above the breakout candle has a large real body and almost no lower shadow, which indicates the break's legit and we may anticipate further downside.

3) Old resistance should become new support and vica versa
AUD/NZD DAILY

This amazing principle allows us to enter new trades at the best possible price. A lot of times we have missed the initial opportunity to enter on a breakout, however, if wait and allow the price to come back to the previous broken support or resistance level, we get a chance to enter with a lot better risk:reward ratio.

In the example above you can see clear resistance level - after it broke with an upside gap you wouldn't want to enter a buy order, unless you opened the trade right on the candle open price, because of a very wide stop, however, when the price falls back down to test the former resistance as the new support for the first time, you can enter a long order and position the stop just below the former resistance/new support level.


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