Trading is one way to profit from market price movements. However, being a trader is not easy. In the world of trading, it is important for traders to understand the concept of support and resistance.
Support is a price level where the demand to buy in the market is so strong that it prevents the price from falling any further. Meanwhile, resistance is a price level where the supply to sell in the market is so strong that it prevents the price from rising any further. When support and resistance are found, traders can use that information to determine their entry or exit levels.
Understanding the Concept of Support and Resistance: Chart Reading with Support and Resistance
In trading, charts are the main tool for reading market price movements. In charts, support and resistance levels are usually marked as horizontal lines that indicate specific price levels.
Traders can use support and resistance levels to determine their entry or exit levels. When the price approaches the support level, traders may consider buying as they expect the price to rebound after reaching the support level. Conversely, when the price approaches the resistance level, traders may consider selling as they expect the price to fall after reaching the resistance level.
How to Trade with Support and Resistance
There are many ways to trade with support and resistance. One of them is by using a breakout strategy. Breakout strategy is a trading strategy that uses support and resistance levels as a reference to determine entry or exit levels.
In a breakout strategy, traders wait until the price breaks the support or resistance level with strong volume. Once the price breaks the support or resistance level, traders can open long or short positions depending on the direction of price movement.
Excellence of Trading with Support and Resistance
One of the advantages of trading with support and resistance is that traders can have clear entry levels. By using support and resistance levels, traders can determine the right entry level and increase their profit potential.
Another advantage is that trading with support and resistance can help traders avoid unnecessary losses. By having clear support and resistance levels, traders can place stop losses at the right levels and avoid unnecessary losses if the price moves against them.
Disadvantages of Trading with Support and Resistance
One of the drawbacks of trading with support and resistance is that support and resistance levels are not always accurate. There are many factors that can affect market price movements, so support and resistance levels are not always well confirmed.
Another drawback is that trading with support and resistance can tend to be slow. This is due to the fact that many traders use support and resistance levels as a reference, so the volume of trading at these levels can be very large.
How to Practically Trade with Support and Resistance
After understanding the concept of support and resistance and reading charts well, here is a practical way to trade with support and resistance:
1. Identify Support and Resistance Levels
The first step is to identify the support and resistance levels on the chart. Look for levels formed from the highest and lowest prices on the chart.
2. Determine Entry and Exit Levels
After identifying the support and resistance levels, the next step is to determine the entry and exit levels. When the price approaches the support level, consider buying. Meanwhile, when the price approaches the resistance level, consider selling.
3. Use Stop Loss
Always use a stop loss when trading with support and resistance. This is important to avoid unnecessary losses if the price moves against us.
4. Use Risk Management
Use risk management to avoid losing too much money in a single trade. It’s best to risk no more than 1-2% of your capital.
5. Practice with a Demo Account
If you are just learning to trade with support and resistance, it is advisable to try trading with a demo account first before starting trading with a real account.
6. Keep Learning
Keep learning about trading with support and resistance. Learn new strategies and keep honing your chart reading skills.
7. Stick to Your Trading Plan
Every trader should have a clear trading plan and stick to it. Do not be tempted to make decisions that are not in accordance with your trading plan.
How to Trade with Support and Resistance – Q&A
1. Is trading with support and resistance only suitable for beginner traders?
No, it’s not. Trading with support and resistance can be done by beginner traders to experienced traders. However, traders need to learn the concept of support and resistance and practice reading charts well before implementing a trading strategy with support and resistance.
2. Is it necessary to use other indicators besides support and resistance?
Not necessary. Support and resistance are strong enough as a basis for technical analysis. However, the use of other indicators can help traders better read market price movements.
3. How long does it take to learn how to trade with support and resistance?
There is no definite time frame. The time needed to learn to trade with support and resistance depends on the ability and time available from each trader.
4. Does trading with support and resistance always make a profit?
No, it doesn’t. There is no trading strategy that always makes a profit. However, by following the correct trading rules and being disciplined in adhering to the trading plan, the chances of making a profit can increase.
5. What to do if the support or resistance level used is not well confirmed?
If the support or resistance level used is not well confirmed, traders can look for other levels that are in line with market price movements. Do not be tempted to force support or resistance levels that are not well confirmed.
6. Does the breakout strategy always make a profit?
No, it doesn’t. Like any other trading strategy, breakout strategies do not always result in profits. However, with the proper use of stop loss and risk management, the chances of making a profit can increase.
7. What to do if the price doesn’t break out of the support or resistance level?
If the price does not break the support or resistance level, traders can either wait until the price approaches the level again or look for other well-confirmed levels to trade.
8. What to do if the price breaks out of a support or resistance level but is not followed by strong volume?
If the price breaks out of a support or resistance level but is not followed by strong volume, traders need to be cautious about opening positions. Price breaking out of a support or resistance level without strong volume may indicate a false breakout or false signal.
9. What to do if the price breaks out of a support or resistance level but returns to that level again?
If the price breaks the support or resistance level but returns to it again, traders can place a stop loss below or above the level to avoid unnecessary losses if the price moves against them.
10. What to do if the price doesn’t rebound after reaching a support or resistance level?
If the price does not rebound after reaching a support or resistance level, traders need to be cautious and consider closing their positions if the price continues to move against them.
11. What effect does news have on support and resistance levels?
News can affect market price movements and can change pre-established support and resistance levels. Therefore, traders need to pay attention to news that can affect the market.
12. Can support and resistance levels be used to trade on shorter timeframes?
Yes. Support and resistance levels can be used to trade on shorter time frames such as 5 minutes or 15 minutes. However, traders need to pay attention to the time frame being used before deciding to open a position.
13. What to do if the price goes beyond the resistance level but does not have a strong breakout?
If the price surpasses the resistance level but does not have a strong breakout, traders need to be cautious and may place a stop loss below the resistance level to avoid unnecessary losses if the price moves against them.
Conclusion
Trading with support and resistance is one of the most popular trading strategies among traders. By understanding the concept of support and resistance and reading charts well, traders can increase their chances of making profits. However, traders also need to pay attention to the weaknesses of the support and resistance trading strategy and always pay attention to their risk management and trading plan.
Action Plan
After reading this article, the author invites readers to expand their knowledge of trading with support and resistance. Try to understand the concept of support and resistance and keep learning about trading strategies with support and resistance. Also, don’t forget to always pay attention to your risk management and trading plan.
Disclaimer
This article is for informational purposes only and does not constitute investment or trading advice. The author is not responsible for any trading decisions made by readers based on the information contained in this article.
| Support | Resistance |
|---|---|
| 1.2000 | 1.2500 |
| 1.1500 | 1.3000 |
| 1.1000 | 1.3500 |
