Use This Support and Resistance Strategy To Increase Your Probability of a Successful Trader
Written by James Watts on April 26th 2020
When it comes to trading strategies you will never be short of choosing one or even developing one based on back-testing. However, to become a successful trader and increase the probability of winning trades, it is imperative that you have a solid understanding of how some basic strategies work in order for you to plan and extract bits of information to piece together a better one. Believe it or not, this is how some of the best strategies were designed and are relatively successful. As I mentioned before, in order to piece together a successful strategy, you need to understand some of the more basic strategies that people use today. One such strategy is the support & resistance strategy and even though it is a pretty basic strategy on its own it can be really useful and can even be built upon.
Support and resistance are without a doubt two of the most talked-about features of any technical analysis, as they paint a marvellous picture of how markets generally move, and how we can predict future market movements. But don’t be fooled, at first glance, the explanation behind identifying these levels on a chart seems somewhat oversimplified, but down the line, you will notice that support and resistance can take on various different forms, which makes the concept a lot harder to master.
What is Support?
The area of support is a level where what is known as a downtrend can be expected to slow and maybe stop altogether because of a lot of buying power in the market. As the price of oil, for example, drops, subsequently the demand for oil increases, which then forms the area of support, making it harder for sellers to take control. The support area is where the number of buyers begins to outweigh the number of sellers.
What is Resistance?
Likewise, the area of resistance is the opposite of support and is where you can expect an uptrend to halt. This is because there is more selling power than buying power in the market. As the demand for an asset like gold slows down and stops, the sellers are swooping in to take back control. The resistance area is where the number of sellers begins to outweigh the number of buyers and they start to take control again.
Trade the ‘Zones’ not the lines
Way too many people fall for this misconception that support and resistance are lines on a chart and follow the same pattern. This couldn’t be further from the truth, and because of this falsehood, many professional traders like to take advantage of your naivety. Support and Resistance aren’t lines, but zones! Let me say that again just so you understand. “Support and resistance areas are zones, not lines”
You should NEVER think of support and resistance as lines, but more like zones. The sooner you master this methodology the sooner you can start becoming profitable. This is because the area in which buyers and sellers are battling it out can be within a large range. You should actually think of these zones as supply & demand zones rather than support & resistance, as these zones are where buyers and sellers congregate to take control of the market in either direction. It pays dividends to look back at previous areas of supply and demand (support & resistance) and see where buyers and sellers are likely to be waiting and then strike when the iron is hot and go with the flow.
Although the support and resistance strategy is a very popular strategy that a lot of people use, and a lot of people have made plenty of money from. That isn’t to say that you shouldn’t check out other strategies either. Now the reason why I’m saying this is because you need to get a good understanding of other strategies in case you need to change your strategy in the eventuality that your current plan isn’t really working for you. You need the knowledge of other strategies so you can actively and effectively switch to a new one at the drop of a hat.
Nevertheless, the support and resistance strategy is one of these particular strategies that seem to work across different currency pairs and commodities