Support and Resistance


Support and resistance levels are significant levels on the asset chart that the price has a chance of retracing from. Trading on breakouts and trend reversals is a popular method of choosing market entries.

The lines of support and resistance is one of the most used methods when it comes to trading, clearly it is also one of the most effective and precise. If this type of methodology is used with some indicator to complement its prediction, then we will have a very complete operation.

Support and resistance lines on the chart

The horizontal line in the IQ Option drawing panel                                                   image source: iqblog

You can draw these kind of lines on any kind of chart: bar, candlestick, area, or line. But as with other forms of technical analysis, is better to use this with Japanese candlesticks. Support and resistance levels can help operators know when to buy an asset with a falling price and when to consider selling it.

As you can see, support and resistance levels reflect peaks and troughs on the price chart. The supports and resistances are based on the law of supply demand in the market, this Defines when a price is too expensive or too cheap, which is why there are areas of maximum and minimum also called supports and resistances. A support a resistance is nothing more than a human perception of what is going to happen or how far the price can go, because the operators are human it is easy to operate with supports and resistances because they are almost always met. 

Traders who use support and resistance levels have strategies in their arsenal both for rebounds from the level and breakouts of the level.

 
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Rebounds

When the price entries on a lateral zone moving between the two lines of support and resistance.

                                                                                                                                                                image source: iqblog

The picture above shows the price movement in a flat with clear boundaries. This happened when the price entries on a lateral zone and start moving up and down between two lines (support and resistance).

Similarly, we can see tha same on a inclined lines. In this cases sometimes the price start making channels where the price moves between two zones up and down consistentlly. These are called trend lines.

Here we can see a Triangle                                                                                        image source: iqblog
Trend lines forms when we have a trend on the market, this could be up trend or down trend. Basically a trend line indicate the markets trend

You can add horizontal lines too as like an strategy

Probable entry points

It is also likely that a previous resistance level becomes a new support line (when the price of the asset goes up) and vice versa for a downward price movement. The arrows mark as targets potential entry points, which could have been used in this individual case. When there are setbacks, they can be used as a reference to perform an operation in the direction of the trend.

If the pullback is more powerful and the price breaks the support, the operators would consider operating in favor of the breaks. Using a strategy based on trend breaks.

Breakouts

The breakouts are cases in which the price is not maintained in the lateral range and a new trend in the market begins. Breaking we call to the rupture of a repeated situation which can not be repeated because of a change in people’s psychology, this leads to make the total change and not return to the area previously respected, which will not be respected until the price returns to those levels. In some situations the price returns to that price later and respects the area in which there used to be supports and resistance.

Entering the market after a breakout retracement

Fakeout

There are situations in which the breaks deceive the operators, sometimes we believe that it is a situation of breaking when it is only a false situation. that kind of situations can be detected, see the image below

This type of situation what we should do is wait until the price is decided, my recommendation is that we wait for two or three candles to finish closing, and when we see a clear situation, in this way we can perform our operations

The best thing to do is wait for the backslide and see what happens.