*Trading long term, higher timeframe support and resistance zones*
In this blog post I am going to follow on from last weeks “Friday update” and show you some examples of my higher timeframe charts and how I use them to analyse the equity and commodity markets. If you haven’t read my last blog post then you can find it by clicking on link below.
In my last blog post I provided some gentle wisdom as to how I deal with the markets when they react abnormally and differently to what is known. It is a fact that almost any trading strategy is NOT guaranteed to work in ALL market conditions so it is very important to understand your trading strategies and whether they are suitable in the current market climate.
However, what I have found is that many of the simple technical analysis tools will still work if you just adjust how you are trying to use them.
Let’s look at last weeks trading session on the 4 hour INTRADAY timeframe chart for the Dow Jones Index. This is a timeframe that I often use for entering trade positions in normal/the majority of market conditions.
I have marked on the chart above, the key intraday support/resistance zones that I would normally use when trading a trend or chart pattern. However, as you can see when markets behave abnormal like what was witnessed last week, these levels become almost entirely useless.
The chart above shows THREE previously strong support zones that were broken with ease through last weeks bearish sell-off.
I imagine a lot of retail (and professional) traders lost money trying to catch the falling knife and buying at intraday price support zones which were then proven to be useless in a fundamental and panic driven market.
So what can be done?
You need to adjust your way of thinking when the markets react with such ferocity and momentum as was seen last week. Ignore any daily or intraday price support/resistance zones ands trendlines because they will have very little strength against a market trading with such power.
In one single trading week, the Dow Jones index reversed over 7 months worth of growth. The index had fallen from all time highs of above $29,500 to below $25,000 a level last seen in June 2019. When the market is moving at this pace with monthly price ranges being covered in a single trading day, there is no way that a lower timeframe intraday support or resistance zone will likely hold strong.
TOP TIP! Change your price chart to a much higher timeframe. Higher timeframe, long term price support and resistance zones will have a much greater chance of providing a price reaction.
The two charts above show the Dow Jones Index as at today. Can you spot what has occurred over the past 3 trading days?
The major, higher timeframe support zone at the $25,000 key level held strong. Despite a week of continuous high momentum selling, this long term support zone still held strong. By adjusting the timeframe you are trying to trade according to what is occurring in the finical market, this basic technical analysis tool once again provided a great long position trade entry.
Let’s look at another example.
Much like the previous example, US Crude oil has experienced a large sell-off over the past few weeks with price falling over 30% from the current yearly highs. At the beginning of 2019, it took approximately 18 weeks for the price of Crude to go from $44 to $65 per barrel. Since the beginning of 2020 it has taken only 8 weeks to fall from $65 to $44 per barrel.
“Bulls use the stairs, Bears use the window”
What price support zones held strong?
The daily support zone at $52 per barrel provided a brief moment of support a few weeks ago but was swiftly broken to the downside. This proves how even a reasonably strong support zone that had shown daily price support previously, can be broken with ease if the momentum is strong enough. This is why it is important to pick your entries and if you are unsure, wait for the highest timeframe support zones to be reached.
If you look at the second image shown above (the weekly crude oil price chart) the $44 support zone has proven itself multiple times over the past 5 years. This support zone that was tested last week has held strong. Bullish momentum appears to be coming in to the markets now with buyers willing to purchase crude oil at this price.
My open trade trade positions.
I am currently holding multiple long positions on the Dow Jones Index, US Crude Oil and a Crude Oil based ETF. These can be seen below.
IMPORTANT! I try to publish 3 blog posts a week but I also provide daily updates of my trading positions and my thoughts on the financial markets on my personal Instagram page Charlieab94.
What’s coming next?
This week I am going to provide you with my live technical and fundamental analysis of the FX Currency markets and also give you a new trading/finance book recommendation.
Through the rest of the month I am going to provide you with some more trading education, trade examples, live financial market analysis and I plan to continue with the “market dynamics” blog posts.
All my technical analysis is done using the TradingView platform. You can get access via the link below.
My preferred broker of choice is IC Markets. Low spreads and trading costs really help long term profitability. A link to their site is below.
FTMO Trader Funding Programme.
Thanks for reading and please don’t forget to LIKE, SHARE and FOLLOW my blog to stay up to date with the latest market analysis and trading education posts.
DISCLAIMER: None of the information posted on this site is to be considered investment/financial advice. Trading is high risk and you should only trade with money you can afford to lose.