Trader's Toolbox: Support and Resistance Revisited

Although many of you will find this lesson in one of the most basic concepts of market behavior "old hat", it never hurts to review. One of the first things a new trader is told (I hesitate to say learns as many never do) is to buy a breakout above resistance and sell a fall through support.

Resistance is the level which holds a market down, while support is an area which props up a market much like a ceiling and a floor. The key is to identify the critical levels. There are a number of methods to determine support and resistance: trendlines, moving averages, retracements, Gann angles, etc. However, simple observation can be an effective means of locating the important areas. A quick glance at the October cotton chart reveals the most basic levels of support and resistance (broken lines).

A previous high often provides resistance, while an earlier low tends to offer support. Support or resistance levels are not necessarily flat. For example, trendlines reveal areas of rising support or falling resistance. Also, when broken, uptrend lines offer a new level of rising resistance, while the opposite is true for downtrend lines. In fact, virtually any broken area of support will become resistance and vice versa. After breaking a level of support (or resistance), the market commonly comes back to test that level before resuming the downmove (upmove). This may be the single most effective method of locating low-risk entry points for trading purposes. This lesson may seem like wasted space to the experienced. However, it is amazing how often traders simply forget (or ignore) the power of basic support and resistance levels. This concept can be very profitable, but it may be just too "easy".

12 thoughts on “Trader's Toolbox: Support and Resistance Revisited

  1. Kumar:

    In your opinion, "what time frames are used for METALS"? Silver and Gold for example?

    Minutes (5 to 30min), Hourly, or Daily,?

    I believe this is "key" to know for accurate entering and exiting of these markets.

    This quiestion is open to EVERYONE (including ADAM). I would appreciate any responses.

    Thanks,

    Hugo

  2. This is my favourite method of trading reversals and the best one. Also is applicable on every time frame, but more accurate on higher time frames, for example by my experience above 15min for the currency trading.

  3. Great comment Kumar. Even though Ii am relatively experienced, I forget this concept of using the upper time frames for analysis.
    Gary

  4. Agree with you, Kumar. I try several strategies oll the time, but support/ressistance is one of the best

  5. I a noob and getting the feel for all the details. Your analysis is spot on and helpful. It would be interesting to see your analysis of gaps and how that can affect resistance and support.

  6. The time frame is an important factor. Most of the articles doesn't mention about it and the so called noobs are always remain confused. The currency prices are moved by large financial instituitions and they use monthly weekly and daily charts. In my opinion the the support and resistance and trendlines drawn on larger time frames would give better results. Is there any other idea?

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