Lesson 7: Support and Resistance
Supports and resistances are levels where the price has a great chance to bounce. We will notice how the price will bounce several times on the same level before continuing its rise or fall.
Supports: Levels at which the price is supported to continue its rise or fall. Resistances: Levels where the price is stopped and will tend to rebound. I suggest you start drawing them in the line chart and then correct them in the candlestick chart.
Important: Once a resistance is broken, it will become a support to reach a new high.
As we can see from the line graph, the supports and resistances are points where the action bounces. Let’s go and study them with the candlestick chart.
With the candlestick chart, we can see even better how the points that seemed not to touch the supports and resistances, through the shadow of the candle, actually touched. You just have to be careful. Now that you have learned how to find the support and resistance points, you must find the resistance and support zones. The support and resistance zones are used to avoid falling into the trap of not seeing a touch. Remember to draw the zones on the candlestick chart. Below, I reported an example.
We analyzed a chart whose trend was rising, but if the trend were bearish, the concept would have been the same. Now that we have finally understood the support and resistance levels, we must understand when to open our position in Buy or Sell. Now, the famous candles that we studied earlier become important. Candles, combined with support and resistance, are a powerful way to enter the market and generate profits.
Important: Draw your support and resistance levels within the time frame at 1h / 4H / 1D. The entries are shown in the graph below.
As you can see, I have drawn my support and resistance zones with high time frames, but I entered at 30-minute time frames. The first position is a sell; a “Hanging Man” candle and a “Shooting Star” candle have formed, and it’s time to bet on the descent. The Stop Loss place is 15 PIP above the resistance zone, and the take profit at the beginning of the support zone. As we can see, a “Hanging Man” candle has formed in the support zone; we can enter again by betting on the rise. We place the Stop Loss 15 Pip below the support zone and our Take profit at the resistance zone. Both of our trades have respected the zones and reached their T.P. Please do not rush; always wait for confirmation. Trading is patience and psychology. Remember that!
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