Part 1 .Truth About Support and Resistance #Trading #Option's

Part 1 .Truth About Support and Resistance

=============================Support and Resistance=================================

Support and Resistance is one of the universal concepts in trading.

You can apply it to day trading, swing trading, position trading, and etc.

Thus, if there’s only one thing you can master in technical analysis, it would be learning how to trade with Support and Resistance.

However, there are many myths surrounding it which are not true.

The more times Support is tested, the stronger it becomes Support and Resistance are lines on your chart
Support and Resistance are good levels to place your stop loss And if you follow these theories above, it would cost you money in the long run.

But don’t worry. After reading this chapter you will learn the truth about Support and Resistance —
And never look at it the same way again.

Here’s what you’ll learn:

•The truth about Support & Resistance (it’s not what you think)

•Why trading near Support & Resistance gives you favorable risk to reward

•How the market really moves

Are you ready?

Then let’s get started.

Truth #1: The more times Support or Resistance is tested, the weaker it becomes First, let’s define Support and Resistance.

Support is an area on your chart with potential buying pressure.

And Resistance is an area on your chart with potential selling pressure.

Now:

You’ve probably read trading books that say... the more times Support or Resistance is tested, the stronger it becomes.

But the truth is…

The more times Support or Resistance is tested, the weaker it becomes
.
Here’s why…

The market reverses at Support because there is buying pressure to push the price higher.

The buying pressure could be from Institutions, banks, or smart money that trades in large orders.

But imagine this:

If the market keeps re-testing Support, these orders will eventually be filled.

And when all the orders are filled, who’s left to buy?

Here’s what I mean:

Pro Tip:

Higher lows into Resistance usually result in a breakout (ascending triangle).

Lower highs into Support usually results in a breakdown (descending triangle).

Let’s move on…

Truth #2: Support and Resistance are areas on your chart (and not lines)

This is a mistake I’m guilty of. Treating Support and Resistance (SR) as lines on my chart
.
Why?

Because you’ll face these two problems:

•Price “undershoot”(to fail to achieve a particular result) and you missed the trade

•Price “overshoot” (to shoot or go over, beyond, or above)and you assume SR is broken

Let me explain...

Price “undershoot” and you missed the trade

This occurs when the market comes close to your SR line, but not close enough.

Then, it reverses back into the opposite direction. And you miss the trade because you were waiting for the market to test your exact SR level.

Price “overshoot” and you assume SR is broken

This happens when the market breaks your SR level and you assume it’s broken.

Thus, you trade the breakout... but only to realize it’s a false breakout.

So, how do you solve these two problems?

Simple.

Treat Support and Resistance as areas on your chart, not lines.

Truth #3: Why Support and Resistance are areas on your chart

Because of these two group of traders...

1.Traders with the fear of missing out (FOMO)

2.Traders who want to get the best possible price (Cheapo)

Let me explain:

Traders with the fear of missing out would enter their trades the moment price touches Support.

And if there’s enough buying pressure, the market would reverse at that location.

On the other hand...

There are traders who want to get the best possible price, so they place orders at the low of Support.

And if enough traders do it, the market will reverse near the lows of Support.

But here’s the thing:

You’ve no idea which group of traders will be in control. Whether it’s FOMO or Cheapo traders.

Thus, Support and Resistance are areas on your chart, not lines.

Make sense?

Support and Resistance can be dynamic

What you’ve learned earlier is horizontal SR (where the areas are fixed).

But it can also change over time, otherwise known as, Dynamic Support and Resistance.

Now:

There are two ways to identify Dynamic SR.

You can use:

1.Moving average

2.Trend line

Let me explain...

How to use moving average to identify dynamic Support and Resistance

I use the 20 & 50 MA to identify my Dynamic SR.

Here’s an example:

However, it’s not the only way. You can use 100 or 200 MA, and it works fine.
Ultimately, you must find something that suits you (and not blindly follow another trader).

Trendline

These are diagonal lines on your chart to identify dynamic SR.
Here’s what I mean:

Pro Tip:

Treat Support and Resistance as areas on your chart (and not lines).
This applies to both horizontal and dynamic SR.

Truth #4: Support and Resistance are the worst places to put your stop loss

I need not be an Einstein to guess where you’ll put your stops.
Below Support and above Resistance, right?
And why is this worst place to put your stops?
It gets hunted, easily.

So... how do you avoid it?

Well, you can’t avoid it entirely.

But here are two things you can do...

•Set your stop loss a distance from SR

•Wait for candle to close beyond SR