Support and resistance play a very important role in successful trading. These technical levels can have all kinds of technical indicators and instruments and can be used to select a potentially good moment to open a trade.
What are support & resistance levels?
- The support level is a low level that the price can’t seem to drop below.
- The resistance level is a high level that the price can’t seem to break through.
The interesting thing about support and resistance is the fact that once these levels are breached, they usually turn. An old support level can switch to a resistance level and a resistance level can switch to a support level.
Horizontal levels are very powerful. A horizontal level is a level that the price has reached multiple times without breaking through it. Horizontal levels are so powerful because a lot of people keep an eye on them. Because people don’t expect the price to break through the level, it usually doesn’t. You can only draw a horizontal level when there have been clear touches to a specific level.
Only at a strong horizontal level combined with the right candlestick is it recommended that you open a trade. At a horizontal level, the chances of a bounce (the price bounces of the level) increase. When the horizontal level is tested through a low test and the price closes above the level, there is plenty of reason to open up a trade. A trade with a great result!
Wait for a re-test during a breach
Horizontal levels can be very powerful and a false breach isn’t out of the question. Before you take a position due to a breach, it’s recommended that you wait for the re-test. A re-test is a second touch of a horizontal level after which the price hasn’t dropped back to the old level, but continues.
After breaching a resistance level, the chances are that the old resistance will now become a support level. The other way around is also possible: with a breach of the support level, the chances are that this level will now become the new resistance level.
Trend lines: extra confirmation
Trend lines can be used to determine the general direction of a trend of the price. By drawing a trend line, you can determine if it is wise to buy or sell a currency pair. Trend lines can also be used to identify a potential bounce, which is an attractive time to open a position.
Trend lines can be used in combination with other technical indicators to form a strong foundation for opening trades. Keep in mind that trend lines are mostly general indicators of movement and it’s important that you also use other indicators when opening a trade. Trend lines aren’t very strong; use them combined with a horizontal level!
Draw trend lines
It is pretty simple to draw a trend line within MetaTrader. Click the oblique line and drag this line on the trend line you’ve spotted. The trend line should connect the lowest points at an uptrend and the highest points at a downtrend. A minimum of three touches are required for a strong trend.
When there’s consolidation and no clear direction, you can’t use trend lines. A trend line is only usable when there is an uptrend or downtrend on the market. Within MetaTrader you can also draw horizontal levels. Click the straight line for this.