Support and Resistance Miniseries – Part 1

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Welcome to Video #9 – Support and Resistance Part 1. Throughout my time as a financial trader, I have had contact with numerous successful forex traders, and the rate carrying thing of all those traders is they all use Support and Resistance as part of their trading; no matter what they are trading strategy is, Support and Resistance plays the heavy part of their strategy. So it is highly important you pay attention to this video, and next few videos as what I am going to teach is very powerful concept in trading any financial markets.

[00:54] Suppose a Resistance are zones within financial market where price could reverse. There are four types of Support and Resistance I will be covering in this video, and the next three videos. That is

  • Horizontal Support and Resistance
  • Dynamic Supports and Resistance
  • Channel Supports and Resistance
  • Trend Support and Resistance

 

In this video, we are going to start from the top of the list: Horizontal Support and Resistance. But first of all, we’ll see what Support is and what Resistance is.

[01:30] Supports is zone or areas under price which holds price, and as the name suggests it’s a Support to price. Suppose areas can also be referred to as floors. Resistance is zones or areas above price that stops price pushing any higher. And as the name suggest once again, it acts a Resistance to price. Resistance can also be referred to as ceilings.

Here we have a Support level where price continually reaches the level and is rejected. Price reverses and in this administration, we have the Resistance price repeatedly reaches this Resistance. And when price reverses, it is rejected. This horizontal lines where price is repeatedly rejected, it is a horizontal Support and Resistance. There horizontal zones are areas within financial markets where price can reverse repeatedly.

So here is the basic illustration of a Resistance. In financial markets, the Resistance is marked as this red horizontal line. Price comes up, it is rejected; price comes up again, and it is rejected again. This is the very basics of Support and Resistance. This illustration could easily be flipped upside down. We could have a horizontal Support, and price being rejected off that Support.

And now I’ll show you some demonstration of this in a real time price chart, but before I do that, it’s important you must understand what happens when Support or Resistance is broken, so as this horizontal Resistance always be in Resistance. At some point, the prices can’t close above this Resistance level or we may strong Support, but eventually that Support will break and price will close below that Support.
More often or not, when a Resistance level is broken in financial markets then that Resistance will act as a Support. And when a Support level is broken in financial markets, then that will act as a Resistance.
Coming back to the concept that Supports are floors and Resistance are ceilings. We take a block of flats or a block of apartments as an analogy. When we move up at block of flats, or block of apartments, our ceilings becomes floors. When we move down, our block of flats or apartments, our floors becomes ceilings.
So in this illustration in front of me, in which price comes up and reverses. We have a horizontal Resistance, in which price goes up again, it’s rejected and comes back down so we have a strong horizontal Resistance. Eventually, price breaks through this Resistance who closes above the Resistance level. Now this Resistance is a Support. The ceiling has become a floor as price comes back down. Price is rejected and reverses; the Resistance has become a Support.

Let’s look at some real life price charts, and demonstrate this further.
This is the daily chart of the Pound against the Dollar. Price is clearly uptrending. But on this chart we have a very good example of Resistance, and when Resistance turns Support. Prices uptrending; we have a push; a pull back; a push; a pull back; we have this push; price is rejected; it reverses; it pulls back. We again have this second push; price is rejected again at the same level. Let’s mark that as Resistance.
So we have two rejections on this Resistance level, and then price eventually breaks out and moves above this Resistance. You’ll then notice that this Resistance has turned Supports. Price comes down to this ‘Resistance turns Support’, and is rejected. It then comes down the second time, and is rejected. And you notice that price is down steadily, making its way back down to the Support. You may see a third time when price comes down and is rejected.

That is an hourly chart of Pounds against the Dollars.

[06:46] On this chart, we have a clear example of ‘Support turns Resistance’. Price comes strongly at the downside and reverses. We could know that this area has a potential Support. You also notice we have Resistance; price pushed and then reversed. Here is a potential Resistance.

When price reaches this Resistance a second time, once again it was rejected. And when on the downside, our Support wasn’t held a price closed below the Support and our Support has become Resistance. Price came up to this previous Support and was rejected.

[07:45] So how do we trade horizontal Support and Resistance?

Coming back to Japanese candlesticks, I mentioned Pin Bars and Engulfing candles are strong signals, and should be used to work in closed positions in a forex market. If we had marked this Resistance when price came up and was rejected; when he came up the second time, we have a very strong bullish Engulfing candle. Just here! That’s our signal to go short.

And you’ll notice that the price fell heavily on the downside. Once again if we had marked this Support where price came down and was rejected. When they Support was broken, and the price closed below the Support. When price came up to this now Resistance, we have strong bearish Engulfing Candle.
Another signal to go short and price fell on the downside.

[09:13] Let’s go back to daily charts.

If we mark this Resistance. When the Resistance was broken and became a Support, price came down, we have a very string bullish Engulfing – that’s the signal to carry long, and the price went to the upside. The second time price came down to test the Support, we have two bullish Pin Bars. I can zoom in, so it’s clearer.

[09:53] Here is our Pin Bars and price goes heavily on the upside. If price continues to come on the down side on the daily charts of Pounds against US Dollar, we may see more signals at this Support level; Bullish Pin bars and Bullish Engulfing Candles. These could act as signals to go along and follow price as mainly upside due to the rejection of this Support.

[10:30] These Supports and Resistance are demonstrated on the these charts has been very short Support and Resistance. But they can be very long term, and they can be particular Support or Resistance in financial markets, that lasts for months and even years.

This is the Pound against the Dollar; it’s the daily chart. I’ll squeeze them a bit to cover the past few years of the Pound against the Dollar, and also notice we have key Support and Resistance areas. It’s a very strong Resistance: tested one, two, three, four, five times, and becoming Support and was tested around the period of over 18 months. We have a Support down here; like so, tested twice. And we have another Support here: one, two, and three. This final Support has been tested a number of times. We’ll be going back on our price charts and see we have couple of more rejections here.

[12:00] To summarize: Support and Resistance are areas that price could reverse; they are created as price has reversed historically; and Support and Resistance are areas or zones not a specific price.
Our next video is Support and Resistance part 2. Thank you for watching this video and please continue this course.

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Jonathan Millet is currently the proud CEO of ForexMinute.com, the brand new financial news portal which is making waves among Forex traders around the globe for the innumerable Forex resources it offers. He also holds the position of Binary Options Consultant at ForexMinute.com. Before ForexMinute.com was around, Jonathan was a successful Forex dealer and chief market analyst at Forexyard. He has also worked as a Forex trader. His other specialties include advising financial companies of how to stay head of the competition.