Support and Resistance: How to Draw Their Lines 📊
Support: A level at which the price tends to stop falling and rebound upward. Draw a support line by connecting successive lows.
Resistance: A level at which the price tends to stop rising and falling. Draw a resistance line by connecting successive peaks.
Example: If a currency's price bounces from $0.015 upwards several times, $0.015 could be support. If the price can't break above $0.020 several times, $0.020 could be resistance.
Breakout Trading 🔥
- Wait for a breakout: Watch for an important resistance or support level. The breakout can be upward (resistance breakout) or downward (support breakout).
- Breakout Confirmation: Confirm that the breakout is real using trading volume and candle close.
- Enter the trade: After confirmation, enter a trade in the direction of the breakout.
Confirmation of breaches 🔎
- Trading volume: Increased trading volume at the breakout confirms the strength of the breakout.
- Candle close: Make sure the candle closes above resistance (in case of an upward breakout) or below support (in case of a downward breakout).
Using other indicators with the breakout strategy 📊
- RSI indicator: It can be used to confirm the strength of the breakout or to identify overbought areas (e.g. >70 overbought, <30 oversold).
- MACD indicator: helps confirm the trend after a breakout through its line crossovers.
How many frames do we use for hacking?
- Different frames can be used:
- Short frames (1 minute, 5 minutes, 15 minutes): For fast trading, suitable for day trading or scalping.
- Medium frames (1 hour, 4 hours): For analyzing short to medium trends, suitable for trading over hours to days.
- Long time frames (daily, weekly, monthly): for analyzing major and long-term trends, suitable for trading over days to weeks or months.
- The choice of frame depends on:
Trading Strategy: Is it scalping or long-term trading?
- Risk tolerance: Shorter frames carry higher risks due to rapid fluctuations.
- Follow-up time: Longer frames require less follow-up.
Practical and mathematical examples 📊🧮
- Let's say the price of USTC is between $0.015 (support) and $0.020 (resistance).
- If the USTC price breaks above the 0.020 level with an increase in trading volume, this could be a buy signal.
- Calculating the profit/loss ratio:
- Entry: $0.020
Profit target: $0.025
Stop Loss: $0.018
Profit ratio = (0.025 - 0.020) / (0.020 - 0.018) = 2.5
Conclusion 📚
Support, resistance, and breakout trading are important strategies in technical analysis. Using additional indicators and confirming breakouts can improve trading accuracy.
