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Recently, many brothers have reached out to me, saying, 'Sister Hua, your market analysis is very accurate, but there are many professional terms I cannot understand, or even misunderstand, leading to missing out on market opportunities or making wrong trades.' Today, I will organize some straightforward explanations for my brothers.
In the financial market, normal price fluctuations are often accompanied by the alternating appearance of support and resistance levels. These key points collectively outline the intricate contours of market trends.
The essence of resistance levels
When the market price rises to a specific level, it encounters significant selling pressure, making it difficult for prices to continue rising. This resistance area is known as the resistance level. Just like levels in a game, resistance levels also have hierarchies—first resistance level, second resistance level, and even third resistance level. Successfully breaking through the first resistance level indicates strong market momentum, and prices may continue to climb, challenging subsequent resistance levels. However, as the height increases, the upward momentum of the market may gradually weaken, just as a long-distance runner needs to rest at appropriate times. Thus, these resistance levels are not only good opportunities for bulls to take profits and bears to enter positions, but they are also key references for us to adjust our position strategies based on market analysis.
Case analysis: Suppose a certain asset price firmly stands at 68,800 points, indicating that a four-hour level rebound is about to unfold. At this time, the upper levels of 69,500 points and 69,900 points become potential sell points for bulls and also entry points for bears to consider building positions. Once the price breaks through these levels, we should flexibly adjust our strategy and continue to look for trading opportunities near the new resistance levels, but remember to avoid over-leveraging to not miss out on a flexible response when the market turns.
Interpretation of support levels
In contrast to resistance levels, when the market price falls to a certain level, it encounters significant buying support, preventing prices from declining further. This area is known as the support level. Support levels also have layers, with each layer of support potentially triggering a brief market rebound. If the price directly breaks below a certain support level, it indicates strong bearish momentum and may continue to explore deeper support. At this point, the support level becomes a key position for bears to take profits and bulls to seek buying opportunities.
Example illustration: If a certain asset price cannot maintain above 2,465 points, it suggests that it may continue to decline. The lower levels of 2,410 points and 2,383 points become reference points for bears to consider selling and bulls to prepare for bottom fishing. Once the price breaks below these support levels, we should quickly adjust our strategy and look for new trading opportunities near the next support level. In contract trading, leveraging small amounts for large returns is common, but avoid blindly over-leveraging; stay calm and manage risks reasonably.
Summary of trading strategies
In the absence of significant news impact, day traders may consider looking for bullish opportunities near the first support level or laying out bearish positions near the first resistance level. For more cautious traders, waiting for clearer trading signals near the second and third support or resistance levels may be preferable. Remember, the essence of trading lies in risk control, not blindly pursuing profits.
The importance of position management
Avoiding full margin operations is a rule that every trader should remember. Regardless of how much leverage is used, keeping the position within a reasonable range (such as within 5%) is key to protecting capital and ensuring long-term survival. Do not be blinded by temporary profits and blindly follow so-called 'war god' strategies. True trading wisdom lies in managing risks steadily and continuously surviving and growing in the market.
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