What do you need to know about Support and Resistance Levels?
Support and Resistance levels have to be the keywords for best used concepts in Binary Options trading. Even if everyone has their own idea on how to measure support and resistance levels, there are some rules which cannot be denied.
What do Support and Resistance Levels look like on a Candlestick Chart
If you look at the screenshot from a live trading session above, you will see that there is a clear zig zag pattern. We see that the assets are climbing up. When the assets are climbing this is called a BULL MARKET. When the assets are sliding down we call this a BEAR MARKET.
Remember Bulls are the fighters. They are fighting to rise higher. They are strong and aggressive. A rising market is a Bullish Market
Bears are protective. They are strong and they will try to keep their ground. One rip from the Bulls horns and they are done! A sliding market is a Bearish market.
There is never a clear rising to the stars, or a staircase to hell. What we see in a Trending
Market is a clear rise or a clear fall, but in the meantime we have what are known as PULL-BACKS. Pull backs are reactions from bears and bulls fighting to gain their footing. Whoever prevails in the end, will set the trend. When a trending market moves up and then pulls back, the highest point is called the “Resistance level” whilst the lowest point reached is called the “Support Level”
As the market soars upwards, we see new support and resistance levels being created continuously. As such the old Resistance becomes the new Support on the next flight of steps upwards. The reverse happens when the trending market is a slipping for falling market.
Watch video explaining Support and Resistance Levels in an easy to comprehend way.
How to Plot Support and Resistance Levels in Trading Binary Options or Forex.
The first thing to bear in mind is that support and resistance levels are NOT PERFECT NUMBERS. Many a time you will see that the market will repeatedly “test” a new support or resistance level, until it breaks out and sets a trend! Many times, the candlesticks form shadows at the point where they are testing the support or resistance levels.
In the example shown, it is clear that the market was being tested on the “support” level. It seemed to be at a point of “breaking out” the previous trend. But in fact it did not. What it was doing, was simply ‘testing’ the market.
How do Support and Resistance help us with our daily trading?
Once we start becoming familiar with plotting support and resistance lines, it becomes clear very fast that we are dealing with assets that are bouncing up and down between support and resistance. In a situation where we do not have a “break out” and we see the point that a currency pair are touching the resistance point, we know that we should take a “PUT” signal. The assets will be heading down for the next time frame until they reach their support level. Likewise, once the pair reach the bottom of the rung, and unless there is a price breakout, you can be assured that the pair will be heading up again. Take a “CALL” signal within the time frame of the charts you are looking at.. and presto! You are in the money.
How can we ascertain that support and resistance have been broken?
We need to assume that we are working in a “Trending Market”. One very important thing to note is that we must always check the Economic Calendar to ensure that whilst trading in a trending market, there is no influential news updates that may affect the market. Although we do need volatility, we do not need a crazy market which will fluctuate crazily from important news updates. Trade whenever you are sure that there is a comfortable trend, without anything upsetting the current mood.
Understanding where the Support level is, becomes a clear indication when it is safe to trade. If we look at the chart here we can clearly see where our support level it. Consider it as a safety net, which is strong, but which can break out! As long as it remains strong on the pulleys and intact, we know that we can go for gold and trade upwards!
What are False Breakouts? Think in Terms of Zones for Resistance and Support
In our review for Chart Trading, we examined how line charts give us a very clear picture of where a trending market is heading. A line chart does not give you information of price entry or exit in a time frame, but it clearly maps out direction.
If there is a pull back or a knee-jerk, this is very visible on a candlestick chart. But we are not interested in the reflexes of the market. Here we are interested in plotting what is the INTENTION of the market !
If we look at the line chart below, we can easily plot our support and resistance lines. The chart looks like a fairy tale of mountains and valleys, but it tells us a real story of how we can take advantage of the market and make money online!
Support and Resistance Levels – Tips and Tricks
- If the price “Goes through the Roof” what was previously a “Resistance level” could now become your new “Support level”. Alternatively, if the price has “hits the bottom and falls through” your old support level is now your new resistance level.
- If the price hits and bounces back from the support and resistance levels several times, it means that your bandwidth is looking stronger. It is an area where ping-pong is being played by professionals and you can take advantage of this by playing Call and Put between the support and resistance areas.
- When the levels break, you will need time to study whether the break-out is due to a economic update, where hell can break loose, or whether this is forming a new trend. If this is a new trend, take time to study it, be reassured and it will be time for the next round of ping-pong trading! Binary options can be lucrative and fun!
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