I’m reading the school entry on Support and Resistance and something is a little confusing for me right now:
When the market moves up and then pulls back, the highest point reached before it pulled back is now resistance…As the market continues up again, the lowest point reached before it started back is now support.
One thing to remember is that support and resistance levels are not exact numbers…Often times you will see a support or resistance level that appears broken, but soon after find out that the market was just testing it. With candlestick charts, these “tests” of support and resistance are usually represented by the candlestick shadows.
So when I’m looking at a chart and I want to point at something and say “That’s resistance”, I should NOT be looking at the candle stick shadows, but instead look at the body. Is this correct?
It can be both. If you can draw a resistance line for example that has a good number of wicks touching it, do it. It’s probably fairly effective. If you can draw a line that has a good number of closing highs touching it (tops of bodies), do that too, for it can also be effective.
Hope that’s not too confusing right off, but you can do it either way. Keep in mind different brokers can have different looking candles based on what time zone their coming out of, so it’s an approximation most times anyway.
The shadows are where the support or resistance is.
Look at the G/U last night on a 1 hour chart, and you can see exactly where supply overwhelms demand, and about 60 pips under that, you can see where demand overwhelms supply, so what did it do? Retrace to equilibrium.