How Coordinates Work as Support and Resistance
Welcome to our comprehensive guide on Support and Resistance. This manual is designed to help you understand these fundamental concepts in technical analysis and how to effectively use them in your trading strategies.
What are Support and Resistance?
• Support: A price level where a downtrend can be expected to pause due to a concentration of demand. As the price drops towards support, it becomes more attractive to buyers, potentially halting the decline.
• Resistance: A price level where an uptrend can be expected to pause due to a concentration of supply. As the price rises towards resistance, it becomes more attractive to sellers, potentially halting the rise.
Why Support and Resistance Levels Form
1. Historical Price Levels: Support and resistance levels often form at price points where the asset has historically reversed direction. These levels are significant because they reflect the collective memory of market participants.
2. Psychological Factors: Round numbers (e.g., 100, 1000) often act as support or resistance due to psychological factors. Traders tend to place buy or sell orders at these levels.
3. Supply and Demand: At support levels, demand increases as price fall, while at resistance levels, supply increases as price rise.
How to Identify Support and Resistance Levels
1. Coordinates: TR, CR, URT, UR, LR, LRT, FR, BR all are support or resistance levels, price respects them precisely.
2. Bounce Trading: Enter trades when the price bounces off a support or resistance level.
3. Breakout Trading: Enter trades when the price breaks through a support or resistance level.
What if Price Gaps Up above TR (Coordinate) as Market Opens
1. Big Gap Up: If asset price opens above TR indicates that price is going to be up trending by triggering a short covering move.
2. When to Build Position: Wait for price retracement to TR or CR (Coordinate) and price support the level and bounce from the level, Build position with Stop-Loss below the supported level.
Risk Management
1. Stop-Loss Orders: Place stop-loss orders below support levels in long trades and above resistance levels in short trades to limit potential losses.
2. Position Sizing: Adjust your position size based on the distance to support or resistance level to manage risk effectively.
