What is Support & Resistance?
What is Support?
When the price falls to a certain price, the decline will stop, or even rebound.
Methods of seeking Support:
1. Candlestick Form
Feature: Long Lower Shadow
Indicates that there is a low buying order below, boosting the price to rise from the decline, which can be regarded as a Support price.
The price is stagnant within consolidation, and a short-term trend is often established after the breakthrough. After the breakthrough, the support/pressure of the breakthrough is sometimes back-tested(re-tested). The breakthrough point can also be regarded as the new pressure or support point.
3. Support from Moving Average Below
Bullish trends tend to pull back down, and the price would usually pull back to near the moving average and stop the decline, then restarting a new round of rally.
4. Throughout the Bullish trend, we can draw an uptrend line to join the bottoms, what can be recognize as a support point. If the market price set back to the vicinity and bounces back, then we would discern the line-draw is reliable.
What is Resistance?
When the price rises to a certain level, the rally tends to stop and even begin to pull back down.
Methods of seeking Resistance
1. Candlestick Pattern
The long upper-wick candle representing that there is selling pressure above, or due to profit-taking actions from the previous holders. The selling pressure would stop the uptrend or even sinks the outlook. Therefore, can be regarded as an effective resistance level.
The price is lingering within a specific range, and a short-term trend is often established after the breakout. Once the breakout is settled, the original support/pressure of the breakout position would constantly back-test. The breakout point can then be regarded as a new pressure and support point.
3. In a Bear trend, a plunge is often accompanied by a rebound. After testing the pressure of the moving average overhead, the rebound often stops rising and falls again, so the moving average can certainly be regarded as one of the resistance for reference.
4. In a Bearish trend, a downtrend resistance line can often be drawn, and the price often runs below this line. When it rebounds upward, it is often been suppressed to fall, so the trend line can also be regarded as an effective resistance level.
Conversion of Support & Resistance
※The Principle of Extreme Conversion
When the resistance were breakthrough, the original resistance would sometimes be back-tested. If the back-test does not break below, it can be regarded as the previous resistance has turned into it’s support.
When the support is broken, the original support would sometimes be back-tested. If the back-test hasn’t successfully breakthrough, it can be considered that the support has turned into resistance.
Practical Operation by Cooperating Support & Resistance
1. Identify the trend first, then operate along the trend
2. Take profit for Long orders near Resistance; Take profit for Short orders when meet Support.
3. The winning rate will be higher when:
-Long orders placed at as close as the Support;
-Short orders placed as near as the Resistance.
4. It is not advisable to nominate your Support & Resistance too close, otherwise it will lose its meaning (the range of $8-10 USD is ideal)
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