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Support & Resistance

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Chapter 4

Support & Resistance

 

4.1 Support

It’s the lowest price point during trend, where buying pressure has increased in the past is called support level. A horizontal line is drawn as a future reference to describe the level as the support level. Each time frame has its own support level and higher time frame support levels are considered major support levels for trading purposes. Pair price has a very high tendency to reverse close to Support.

It acts as a barrier for the trader to accept further drop to price in base currency emotionally.

Trendlines and moving averages during bullish trends act as support levels as well thus supporting prices to jump higher.

If the price for the bearish pair crosses through the support level then it can start acting as resistance for future pair price.

 

4.2 Resistance

It’s the highest price point during trend, where selling pressure has increased in the past is called resistance level. A horizontal line is drawn as a future reference to describe the level as resistance level.

 

Each time frame has its own resistance level and higher time frame resistance levels are considered major resistance levels for trading purposes. Pair price has a very high tendency to reverse close to resistance.

 

 

It acts as a barrier for the trader to accept further rise to price in base currency emotionally.

Trendlines and moving averages during bearish trends act as resistance levels as well thus forcing prices to drop lower.

If the price for the bullish pair crosses through the resistance level then it can start acting as support for future pair price.

 

4.3 Multi-point Touch Support / Resistance Level & How to Draw

Multi-point Touch Support Level / Resistance Level

A horizontal line describing the support/resistance level that has multiple touchpoints. This might be the best-fit line at the support or resistance level. It may not represent the lowest or highest price point of the pair but is a fair representation of market emotions for the price of the pair providing a potential indication of price reversal.

How to Draw Multi-point Touch Support / Resistance Level

See below EURNZD at 1Hr. Now run a horizontal line that approximately best fits the lowest recent price.

See below fig (A) The bearish pair has made 3 attempts to approximately touch 1.6340 price level. If again falls back that means this support level has the potential to act as a barrier and might support the price to reverse.

Now fig (B) describes another attempt at the Multi-Point Touch Support level at 1.6340 reversing the price to go higher. Trading close to this level provides the benefit of very less drawdown.

Fig (A)

(Sourced from www.Tradingview.com)

 

Fig (B)

(Sourced from www.Tradingview.com)

Similarly, see below EURNZD at 1Hr. Now run a horizontal line that approximately best fits the highest recent price.

See the fig (C) The bearish pair has made multiple attempts to approximately touch 1.6766 price level. If again rises back that means this resistance level has the potential to act as a barrier and might force the price to reverse.

Now fig (D) describes another attempt at the Multi-Point Touch Resistance level at 1.6766 reversing the price to drop. Trading close to this level provides the benefit of very less drawdown.

 

 

 

 

 

 

Fig (C)

(Sourced from www.Tradingview.com)

Fig (D)

(Sourced from www.Tradingview.com)

 

4.4 Reversal-point Touch Support / Resistance Level & How to Draw

Finding recent Lowest Low or Highest High point

For support, how do you find the recent Lowest low point—from the current market price start taking your steps towards the candles to the left and start descending candles till you reach your first candle that has touched the lowest price with 2 candles to the left and 2 candles to the right with their lowest prices still higher than this candle you have found with lowest price. This is your first level of support and similarly, you will find multiple levels of support on your chart at whatever time frame you are working. Always go left when you want to analyze your chart. Higher time frames tend to be more accurate to reflect price levels and lower time frame tend to provide more market noise.

(Sourced from www.Tradingview.com)

 

 

 

 

For resistance, how do you find the recent Highest High point—from the current market price start taking y our steps towards the candles to the left and start climbing candles till you reach your first candle that has touched the highest price with 2 candles to the left and 2 candles to the right with their highest prices still lower than this candle you have found with highest price. This is your first level of resistance and similarly, you will find multiple levels of resistance on your chart at whatever time frame you are working. Always go left when you want to analyze your chart. Higher time frames tend to be more accurate to reflect price levels and lower time frame tend to provide more market noise.

Why do you need multiple levels of support and resistance- Support and resistance simply mean the price points where the market has tendency to deflect; simply put your entry points, your stop loss or target profits are defined.

 

 

Reversal-point Touch Support Level / Resistance Level

This is the starting point of support and resistance level check. A horizontal line describing the support/resistance level that has a Lowest or Highest touchpoints. This represents the lowest or highest price point of the pair & higher representation of market emotions for the price of the pair providing a potential indication of price reversal.

 

How to Draw Reversal-point Touch Support / Resistance Level

I call reversal points as the deepest or highest points on the chart. Compress the chart to a readable level and go for the highest and deepest price points. Now you will think if you compress more you will find many such points. Don’t worry, Go for the recent highest high & lowest low on the chart. Too much compressing will certainly give you valid support and resistance that for sure certainly, the market will remember but you will not be based on your trading style; so compress to chart that is readable to you for trading and finding your support and resistance.

 

See below EURCAD at 4Hr. Now draw a horizontal line at the lowest recent price. This defines the recent support level. Similarly, a horizontal line drawn at the recent highest price point will called resistance.

 

See below fig (A) The bearish pair has made recent attempts to touch 1.5324 price level. If again falls back that means this support level has the potential to act as a barrier and might support the price to reverse.

 

Now fig (B) describes another attempt at the Reversal-Point Touch Support level at 1.5324 & prices does test the same support back but then this support level provides enough support for the price to go higher. Trading close to this level provides the benefit of very less drawdown.

 

 

Fig (A)

(Sourced from www.Tradingview.com)

Fig (B)

(Sourced from www.Tradingview.com)

 

4.5 Pivot

Pivot point is the middle price around which the pair hovers. It is calculated as an average of the highest price, lowest price and last closing price for last 21 candles on whatever time frame you are.

Pivot Point = (Highest price + Lowest Price + Last Closing Price) /3

Some calculators give options to change period from other than 21 candles.

As this is the overall average of the highest price, lowest price and last closing price; thus it is used by traders as an entry point or stop loss and take profit levels.

Review carefully the GBPNZD (D) Chart below – It classic 21 candle Pivot plotted with Resistance and Support levels. Pivot (P) acted as support pushing the prices up. When you are analyzing the chart with Pivot just keep in mind the Pivot and respective R1/S1, R2/S2, etc. are representing static value of past 21 candles.

(Sourced from www.Tradingview.com)

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