*Looking at current trades and markets that prove trading support and resistance zones works*
Welcome back to the blog! I apologise for the lack of content over the past few days, I have been away on a golf trip to Europe. Let’s get right back in to it and look at some current markets price action so I can show you that the basic theory of trading support and resistance price zones is effective and can be profitable.
What is support and resistance?
Support and resistance zones are areas where buyers and sellers congregate and come to an overall directional bias and price reverses. A support zone is where buy orders are placed and price is supported up and stopped from going lower. A resistance zone is the opposite. The image below shows a simple line chart example of these zones.
I have covered these in much greater detail in previous blog posts which you can find via the links below, I highly recommend you read them if you have time.
I have seen a lot of traders online selling trading courses and promoting strategies where they actively state that support and resistance zones do not work. In my opinion this is ridiculous and some of the bets stock pickers, fund traders and long term investors all incorporate key number price support and resistance zones in to their technical analysis.
Different styles of trading support and resistance zones.
The main theory behind support and resistance price zones is that it is where buyers or sellers deem an asset or security to cheap or too expensive and this is where the majority of the market begin to “buy low” or “sell high”. This is when a reversal likely occurs and the buyer/seller bias changes.
There are a few ways you can use the knowledge of this theory to your advantage. The first is trading reversals where by you sell an asset at a resistance zone or buy when it reaches a support zone. This is the standard support and resistance bounce trade that usually works across multiple timeframes. The image below shows examples of this type trading.
As you can see, this tends to work best when trading ranges or price that is forming a channel and moving sideways. Another type of trading using support and resistance zones is actually for when you are trying to trade trends and it can also work across multiple timeframes. You can use the break and then retest and bounce off a support or resistance zone as another confluence for finding and buying the higher lows of a bullish trend (or selling the lower highs for a bearish trend).
Theory and line chart examples are great for learning and understanding the basics of something but it is another skill altogether trying to find the same set ups in the live financial markets. Let’s look at 2 examples of support and resistance zones on current live financial markets.
FTSE100 index – resistance zone short trade
As you can see, much like the line chart sample previously shown to you, the FTSE100 index is range bound right now and moving sideways. There is extremely high levels of volatile on most timeframes and on the 4hr chart it begins to clear up slightly and the price channel becomes more apparent. I am currently shorting both the FTSE100 index and the Dow Jones index using established price resistance zones as a a strong confluences to enter trade positions.
Shorting at the 6300 price level would have provided multiple successful short trade entries over the past 8 weeks and this is why it believe this very simple technical analysis technique still works in todays markets.
I am currently shorting the FTSE100 index and I will continue to do so as long as the 6300 price zone holds strong. I can see multiple price reactions at the 6000 price level so that is where I will look to take profits should the current sell off continue.
GBPUSD intraday support and resistance zone trends.
The pound has been on a solid bullish run since it bounced off 1.25 around 2 weeks ago. As I mentioned earlier, support and resistance zones can be identified and traded on almost any timeframe but their effectiveness and validity is effected as you go to lower timeframes. If you look at the chart above you can see how price did break through resistance zones and then pullback in to them and continue on higher.
Currently lower timeframe volatility is high and there are large daily swings in price so trading lower timeframes is riskier. However, that does not mean that support and resonance zone bounces do not occur.
The GBPUSD currency pair is currently testing and rejecting the 1.29 price level and if this holds strong then I expect another sell off down into the various support zones below current market price. Alternatively, if price does break above 1.29 then look for the retest and bounce off of this zone for potential long trade entries.
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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.