Price Action Market Traps: 7 Trap Strategies Market Psychology Minimal Risk & Maximum Profit by Ray Wang

Author:Ray Wang [Wang, Ray]
Language: eng
Format: epub
Tags: Business, Economics, Finance, Non-Fiction
Amazon: B06XBTD847
Published: 2017-02-27T00:00:00+00:00

Chapter 6-Support & Resistance

Support & Resistance are zones where price will either halt and reverse or break through. Trading using Support & resistance concept is considered old-school methodology. It has been popular for a long time. These zones can also be called supply & demand zones, where buyers and sellers are active. If price is dropping to a certain level and halts, it shows that level has more buyers than sellers. It's called support. Vice versa for resistance, more sellers are invested at a certain level which stops price from raising higher. The past price action indicates where these zones are. Mark them on the chart for future reference.

An important concept to remember is that Support & resistance zones marked from higher time frame chart is relatively more reliable. If you trade the 5-min chart, then go to 15-mins or hourly chart to mark these levels and import them to your 5-min chart and observe the reactions off these levels.

Support & resistance levels are interchangeable. Once support is being penetrated, it will act as resistance for future price action. Once resistance is broken, it will act as support when price revisit that level. These interactions are very important for traders because they are often reliable. For example, there is an upside breakout of the previous swing high, a resistance point. Buyers who profited from the initial breakout will buy again with confidence when price re-visit the breakout level (support). Conversely, the sellers who lost money holding that resistance level will not sell again when price comes back, they are afraid. Therefore, nobody is selling, everybody is busy buying. A previous resistance point becomes a support level. But it's crucial to always wait for confirmations when trading these zones. Don't get trapped!

Support & Resistance levels can be found through the price action in the past. Just extend the levels to present. You will see price reacts around these levels. Don't assume all Support & resistance Levels are parallel, it can be formed in all different shapes. Support & Resistance Levels also can be "predicted" for the future. For example, AB=CD, once you have ABC, you can have an approximate level where D will be. That's the level for profit-taking and potential reversal. Another example, channels. When price is rotating up and down within the channel, you can buy when price is approaching the bottom line and reverse when it reaches the top of the channel.

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