subject: Learn Trading Support And Resistance [print this page] Author: Ahmad Hassam Author: Ahmad Hassam
Market keeps on moving up, down and sideways. While many trader try to trade trends or breakouts, most of the time the market is moving sideways between two levels known as Support and Resistance.Support and resistance concepts are the most simplest and easiest to identify with indicators and master on charts. Support and resistance trading is also profitable. These two levels are established in the market in response to the balance of supply and demand of a particular stock, currency pair or for that matter any security.Market just reflects the crowd behavior. What the investing crowd is thinking, the market is thinking the same. Crowds tend to behave consistently. Support level is established at a certain price level when the buyers think that the stock, security or the currency pair is attractively priced at that level. So, the crowd continues to believe that price to be the best buying price and the support level keeps on appearing again and again until fundamentals change and the crowd starts new thinking.Similarly there is a price level where the crowd thinks that the stock, currency pair or security is ovepriced. So when price action reaches that level, the crowd starts selling at that level. This level is known as Resistance level. Price bounces back at this level. If it is able to penetrate that level, it is known as a breakout and indicates that the market is changing its direction to a new direction.So, resistance is the level at which the market becomes overbought and support is the level at which the market is oversold. How do you find the market overbought and oversold? You can use the Relative Strength Index (RSI) to know when the market is overbought and oversold. These overbought and oversold levels are just a reflection of the crowd mentalility.This back and forth movement of price action continues in the market. The support and resistance levels are a reflection of the profit and loss taking that is taking place in the market.Support and resistance forms the basis of many successful trading strategies in almost all markets stocks, bonds, forex, futures, options, ETFs, commodities and others. Buy at the support and sell at the resistance is what many traders do. In Channel Trading as well, support and resistance are the levels where traders buy and sell.Support and resistance trading is also known as range trading. The price differential between the support and resistance is known as the range. Calculating daily ranges is an important thing for many day traders. It is essential for you to understand the concept of support and resistance as these two levels are used extensively by traders. About the Author:
Mr. Ahmad Hassam has done Masters from Harvard. Know how to read these Forex Charts! Try this 1500 pips a day Strignano's Forex Signals and learn how to trade like pros from Tom Strignano- an EX CHIEF BANK TRADER. One new member made $15,000 in just 24 hours!
