We can generally evaluate the effectiveness of the support level through the following methods:
1. Price Action
Watch how the price behaves when it approaches the support level. A valid support level usually results in a significant bounce in price. If the price approaches this area and then slowly drops or stays there for a long time and then starts to bounce, this may indicate that the support level is valid.
Pay attention to how many times price touches a support level. The more times a support level is tested, the stronger its validity. However, be careful, as each time a support level is touched it may weaken its strength.
2. Volume
Trading volume is an important indicator for confirming the effectiveness of support levels. When the price falls near the support level, if the trading volume increases significantly and the price rebounds, it is generally regarded as a sign that the support level is effective. Increased trading volume indicates that there are buyers willing to take orders at this price level, supporting the price.
On the other hand, if there is no significant increase in volume when price reaches a support level, then the reliability of this support level will be relatively low.
3. Historical performance
Review the historical performance of the support level. If, in the past, the price has bounced off each time it approached that level, then that support level is more likely to be considered valid.
When analyzing historical data, you can also pay attention to whether the support level has been broken before and the market reaction after the break. If the market immediately recovers it after the break, it may indicate that there is still strong buying at this level.
4. Use technical indicators in combination
Using support levels in conjunction with other technical indicators such as moving averages, RSI, MACD, etc. can add confidence in the validity of a support level. For example, when a support level overlaps with a major moving average, that level may receive additional attention and validation.
5. Market sentiment
Analyze the impact of aspects such as market news or economic data on market sentiment and how these factors may affect the effectiveness of the support level. Market sentiment may also cause the price to break through this level.
The effectiveness of the support level depends on the accumulation of time and experience. At the same time, no technical analysis tool is 100% accurate. You must be ready to respond to market changes and use appropriate risk management strategies.
