Support and Resistance | In this article we will look at exactly how to place support resistance lines on your chart.
Placing good support and resistance lines allows you to see where the price is probably going to have trouble breaking. This is extremely useful if you want to trade line breakouts or if you’re already in a trade and you want to know where to place the Stop Loss or even better a take profit.
Personally I use them mainly for line breaks.
Breakouts from these lines work very well and they often net me 50 to 70 pips per trade on GBP/JPY, that’s probably going to be a little less on EUR/USD and GBP/USD. Before I show you exactly how to place them you need to understand what they are.
So what are Support Resistance lines?
SR lines are areas on a chart at which the price has had trouble breaking in the past and is therefore likely going to have problems break in that same area in the future.
Now that is a very boring in clinical definition, so let’s try to do this another way.
Let’s imagine a Support resistance line is a person, what traits would that support resistance line have? Well first of all the support resistance line would be obvious. The most important aspect of a good support or resistance line is that it is obvious, it is in your face, it is very, very obvious to see, very obvious to place.
Support resistance lines works because thousands of traders expect the price to find a barrier at that level. So you need to place the most obvious ones, in other words the same line that thousands of traders are looking at.
So support resistance lines are obvious in your face, they’re never subtle, they’re always, always obvious.
The other thing is they are indirect, most newbies think that support or resistance lines need to have a direct impact on the price. This is simply not true; they can have either a direct or indirect impact on the price.
Direct impacts are things like weak bounces, which we’ll look at next, and indirect impacts are things like holding the price back for a while.
So the support or resistance line acts as a very temporary barrier to the price, the price approaches it and it kind of holds it away from maybe one two three candles and then it pushes through. That’s an indirect impact.
And the other thing is their imprecise newbies look for the price to either perfectly balanced from the line or perfectly break the line. This is not the case, some support or resistance lines will hold the price back before it is even touched and some will hold the price back after it has been broken.
So support resistance lines are obvious, they are indirect and they are imprecise. Now indirect and imprecise that doesn’t sound like a very useful trading tool, however they are very useful and now you’re going to see some examples on a chart where I placed some support resistance lines, and I’m going to show you just how useful support resistance lines can be.
For you to find some support resistance lines on a chart the very first thing you need to do when you’re placing support or resistance lines is switch to a four-hour or a daily timeframe.
You do this because the four-hour and the daily timeframe they filter out a lot of the noise that you get on the lower time frames.
For example, the 1-hour, the 30-minutes, the 15-minutes, so it doesn’t matter if you trade exclusively the 15-minutes chart or the 1-hour chart.
When you place support resistance lines, jump up to the daily chart or the 4-hour chart and you’ll place your support or resistance lines based on either the daily or the 4-hour time frame.
You just choose whichever one works best for you, so experiment. Personally I use both of them, I usually place them on the daily and confirm them on the four-hour, but sometimes I’ll place them on the four-hour. what you need to do next as the first step is to look for recent areas of support and resistance, so you look at recent price action and you look for recent areas of support and resistance.
On a chart sometimes their very obvious. You look at a sign of support when the price moves down for example, and then try to break through, but it couldn’t and it reversed so the price was supported there or held back and came down and it reversed. Now this is a strong indication of support resistance.
Before I mentioned direct and indirect, this is definitely a direct sign of support resistance, when the price action goes down and it bounces away.
A sign of a resistance line is when the price action is resisted up when the price is trying to move further up but it couldn’t, there you will see the price bouncing down and for several candles the price didn’t reach that high again.
Support Resistance, master them is a matter of dedication and getting into practice.
Is not just finding the lines, is more to use them as guidelines to speculate how like it will be the price action to reach that zone of support resistance and forecast how far is the price for the next support resistance.
But remember what you find as resistance today, might be a support tomorrow, so get sharp on the practice and you will enjoy your trades.