How To Draw Support and Resistance

Do you know the most significant concepts when one thinks of forecast any financial market (Forex, stocks, futures, etc )? I believe support and resistance levels, some traders might disagree with me, but the knowledge we could get from these levels could actually help us trade with better results.

There will be three things the marketplace could do after hitting a support or resistance level :

Retrace
Change direction
Stall

Being aware what the marketplace is probably to carry out after reaching one of these simple levels, we could adapt our strategy to trade based regarding that information : about what the marketplace is probably to carry out. Therefore, we want to understand how to draw support and resistance levels and be ready to result in the necessary changes to our strategy : move your stop loss levels, close your trade, add within your trade, etc.

But first things first, what exactly are these support and resistance levels :

Support level : Is really a level during which the marketplace is rejected a minimum of twice and it‘s keeping the marketplace from reaching lower levels.

Resistance level : is really a level during which the marketplace is rejected a minimum of twice and it‘s keeping the marketplace from reaching higher levels.

Can it be important to understand why the marketplace is rejected from these levels?

No, it isn’t. I don’t care why the marketplace was rejected from a crucial level, what is vital for myself usually is to know what the marketplace is probably to carry out upon the following hours / days (following the rejection has happened ) so I will profit from it. It’s not important to work out why the marketplace moved up or down, what is vital is : whether you profited from it, isn’t it?

There could possibly be many reasons of why the marketplace is rejected from these levels : accumulation of buy orders (with a support level ) or sell orders (with a resistance level ), buyers are attracted from the lower levels (support level ) or sellers attracted from the higher levels (resistance level ), buyers think or have the market will go higher (support ) or sellers think or have the market will go lower, etc. Except for sure, nobody knows the rationale behind market rejections, but again, it doesn’t make a difference, what is vital for those usually is to know what we will do following the rejection. Plus, there isn‘t any method of knowing exactly why the marketplace topped or bottomed at certain level.

Like a side note, There‘ll continually be someone telling you what caused the rejection from the market at one important level, but now you know about the analyst or trader is simply bluffing.

3 Simple rules to draw perfect support and resistance levels

Rule No. 1 : the marketplace needs to obtain rejected a minimum of twice coming from the level (not just one, twice ).

Rule No. 2 : the greater rejections the level has, the greater important it becomes

Rule No. 3 : most recent rejections tend to be more important than less recent rejections


A chart is valued at one thousand words : )

The resistance level (blue line in the top ) it’s essential, the marketplace is rejected three times coming from the same level. If there was another resistance level near this one, with only two rejections, the one marked on blue could be more important.

Now, in regards to the support levels (both have three rejections ), which is much more important? I’d say support level B, since it is more recent than support level A. So If I‘d been trading this currency pair, I’d consume consideration only support level B.

There is definitely rule that I always follow : only take on consideration the support and resistance levels the market is really taking in consideration. Why would I act with different level the marketplace is responding to? Right?

One important thing to think about : support and resistance levels are like zones rather than levels. So don’t break your head attempting to determine places to draw your level : at close from the candlestick, at the bottom low, etc. Just draw it where it touches the foremost rejections.