In each trading session, the prices of trading instruments will certainly change, either up or down. Then, these prices will form patterns of peak highs and lows that are difficult to pass on the next price movement. These peaks are hereinafter known as support and resistance points.
Support & Resistance Points
Support is the lowest price point that survives and does not pass for a while. While the highest point of price movements in a session that has not been passed is called resistance. In the chart, support and resistance can be described as lines that limit price movements.
Then, what are the benefits of utilizing the support and resistance points of an instrument’s price movements?
The answer is that you can utilize support and resistance points that provide a benchmark range of possible price movements in a trading session. By utilizing these two points, you can find out a rough picture of the price position and possible direction of further movement.
According to The Balance, you need to be aware that there are different types of support and resistance, such as minor and major/strong.
How to utilize Support & Resistance in Trading
For example, support is the lowest point in a price movement when the price is near that point. It is likely that the next price will experience a strengthening. Thus, it can be a technical indicator to open long positions and vice versa.
Breakout & False Breakout
However, you also need to be aware of the breakout or false breakout at the points of support and resistance that have lasted long enough. A breakout is an event where the price finally moves through an existing support or resistance point and continues to reach a new support and resistance point.
When other technical indicators show signals of a breakout, sometimes, the price actually reverses and moves in the opposite direction suddenly. This indicates that price movements and emerging market sentiments are not strong enough to break through existing points and create new support and resistance prices.
By doing that way, you can take advantage of support and resistance points in your trading. Moreover, you also need to integrate it with various other technical indicators such as MACD and RSI.
Integrating Support & Resistance with Other Indicators
For example, when prices approach the resistance point, there are two possibilities that may occur. First, the price will experience a breakout or reversal and fall back. You can distinguish both of them by observing the RSI and MACD indicators.
If the MACD chart still shows a positive trend then most likely a breakout will occur.
By combining indicators and price values that are visible, you will more easily recognize price movements that might appear.
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