Today let's talk about support and resistance, which are two very important concepts in trading.
🧐 What are support and resistance?
Imagine you are jumping on a trampoline:
Support levels are like the mesh of a trampoline; when you jump down, the mesh bounces you back up, preventing you from falling lower.
Resistance levels are like the ceiling; when you jump up, the ceiling blocks your head, preventing you from jumping higher.
In trading, a support level is the 'bottom' of the price, which could be a good buying opportunity; a resistance level is the 'top' of the price, which could be a good selling opportunity.
🔍 How to find support and resistance?
Method 1: Near historical price highs and lows
A level position verified twice
A support level is usually a place where the price has bounced back multiple times before.
A resistance level is usually a place where the price has retreated multiple times before.
Method 2: Trend Line
A sloped position verified three times with little inclination
Draw the upward or downward trend line of the price on the candlestick chart; the lower edge of the trend line is often support, while the upper edge is resistance.
Method 3: Technical Indicators
Moving Average (MA): The moving average often serves as support or resistance.
Fibonacci Retracement: This is a very popular tool used to find potential support and resistance levels.
📋 Judging the strength of support and resistance
Look at the magnitude of the rebound wave; the larger the magnitude, the more capital is participating in the market, and the stronger the support and resistance.
Verification frequency; the more times the price reaches this level, the stronger the support and resistance.
⚡ How to tell real from false breakouts?
Check if there is an increase in volume when breaking the moving average.
Can the price hold the trend line after a breakout and pullback at closing (not every time will there be a pullback)?
