How can you tell when a support and/or resistance lines is going to be broken? What should you look for?
Telepathy works for me and if im feeling tired i just use my trusty crystal ball lol!!!
for real you watch price and when it breaks support or resistence than you know it broke. The question you should be asking is how do you know if its a false breakout. to me if a candle opens above resistence or opens below support than it qualifys as broken. Also the higher the timeframe and the more price hits support and resistence than the stronger and more important those lines are. hope this helps, john
It does thank you. When you say the more price hits. Does that mean price hits in a row, or the number of peaks and/or valleys the line hit?
no i mean in the history of the currency for example over the past year. i am attaching a clean gbp/jpy chart and i added 3 horizontal lines. if you look at this chart you can see that at these levels price tends to consolidate than it chooses a direction. if you were watching this pair and it was hovering around these prices, when price moves away from these lines you can expect it to continue in that direction till it hits the next important price area “horizontal line” then the line will either hold the price and the price will bounce off or the price will break through that line and maybe you can expect it to continue in that direction.
I guess what Im trying to say is that if there is an important price level than price will tend to return to that level and if you keep these lines on your chart it will help you to gauge where the market may go in the future.
sorry if this post seems confusing to you. im a little scatterbrained in how im trying to explain this.
I will always assume that support or resistance will hold until it is actually broken (candle close above or below). One of my cardinal rules is, “Never Buy at Resistance, and never sell at support.”
I would also advise that you start to really pay attention to how price behaves around support or resistance and what type of support or resistance is it? Static, dynamic, ascending, descending? Become a student of this, you [U][B]CAN[/B][/U] get rich on support and resistance alone.
Happy pipping.
The image I attached, I drew three other resistance/support lines that I would have put on my chart. - Are these correct? Why or why not…
Thanks a ton for all the help. Knowledge is everything!
Very good!
I beleive that horizontal lines (or static S&R) are the most important. They can be easily remembered and offer S&R time and time again.
You shouldn’t need to ask anyone here whether or not these lines are drawn right or not. You can see for yourself that these levels have been respected multiple times on the same chart.
I have attached a picture of another type of trend line that is also important. Ascending and Descending support and resistance. You can see that these levels are respected also. But as you can see, these lines are dynamic, which means that the exact level of support or resistance changes as time moves foward.
I personally draw all of my horizontal lines first, then go back and add my ascending and descending levels.
Your on the right track!
Happy pipping.
In your picture reference. The bottom acceding line gets broken right towards the right of the line. How would you have known that line was going to be broken and not be used as support like it did the previous number of times?
the idea is you don’t necessarily know when it will be broken. It is AFTER it is broken that is important. Once price does break a support or resistence line then it can be considered a breakout. Once a price moves past a s/r line it is a good indication that it will continue in that direction. If a s/r line was touched alot it will be stronger and have more significance. If you have a significant (if im spelling that right) s/r line and it is broken it means price is moving STRONGLY in that direction.
You must ALWAYS assume that support or resistance will hold until broken. You don’t know, I don’t know, the hedge fund managers don’t know. No one knows. You will save yourself many pips by never buying at resistance or selling at support.
You can trade support and resistance in three ways:
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[B]Trade a bounce off of support or resistance.[/B] In order to do this, you must find some sort of short term confirmation. Some use a low ema cross. Some will use candlestick patterns. Some may use divergence (one of my favorites along with an EMA cross.)
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[B]Trade a break of support and resistance. [/B] In this case you will wait until you have a candle close outside of the support or resistance then buy or sell appropriately. This method carries the most risk due to the fact that price can and will occasionally form a tweezers / railroad track pattern and be jammed back inside the support or resistance level.
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[B]Trade a break and retest of support and resistance.[/B] In this case you will watch for the breakout with a candle close outside of the level, then you will just watch it and wait for price to come back to the area of support or resistance and then trade it just like option 1 (the bounce) with short term confirmation. This is the only way I personally trade a breakout. And sometimes it won’t come back and retest, oh well, better to miss than lose in my opinion.
I also gather from your post that you want a surefire way of telling when support and resistance will hold… well your asking the 1 million dollar question, the question of the ages. The fact is, you will not know, no matter how fancy your indicator or system may be. Part of this business is risk, and you must risk to win. If it was that easy everyone would be a millionaire.
I also favor trading S/R levels and trend lines and also have been studying different methods of gauging the end of Levels. In another thread here on babypips. There is exstensive discussion on this… Peaks and Troughs, it takes the use of Fibs and applies them to horzointal movements. Travelled up so far SHOULD travel sideways so far…But they use fractions 1/3,1/2,2/3
using time of course… Here is the link. 301 Moved Permanently
Also studying Pendants and Flag patterns… But without really seeing Bank orders being filled we will never have that advantage of knowing it is now going to break. Order got filled or not enough to get it filled.
Great trading to all…