The strength of every support or resistance zone depends on three factors: its length, its height, and the volume of trading that has taken place in it.
The longer the support or resistance area - its length of time or the number of hits it took - the stronger it is.
The tall the support or resistance zone, the stronger it is.
The greater the volume of trading in a support or resistance zone, the stronger it is.
Trading Rules:
1. Whenever the trend that I am riding approaches support or resistance, I need to tighten my protective stop.
2. Support and resistance are more important on long-term charts than on short-term charts. Weekly charts are more important than dailies. A good trader keeps an eye on several time frames and defers to the longer ones. If weekly trend is sailing through a clear zone, the fact that the daily trend is hitting support or resistance is less important. When a weekly trend approaches support or resistance, I should be more inclined to act.
3. Support and resistance levels are useful for placing stop-loss and protect-profit orders. The bottom of the congestion area is the bottom line support. If you buy and place your stop below that level, you give the uptrend plenty of room. More cautious traders buy after an upside breakout and place a stop in the middle of congestion area. A true upside breakout should not be followed by a pullback into the range. Reverse this procedure in downtrend.
Many trader avoid placing stops at round number.
True and False breakouts
Market spend more time in trading ranges than they do in trends. Most breakouts from trading ranges are false breakouts. They suck in trend-followers just before prices return into trading range. A false breakout is the bane of amateurs, but professional traders love them.
Professionals expect prices to fluctuate without going very far most of the time. They wait till an upside breakout stops reaching new highs or a downside breakout stops making new lows. Then they pounce - they trade the breakout (trade against it) and place a protective stop at the latest extreme point. It is a very tight stop, and their risk is low, while there is a big profit potential from a pullback into the congestion zone. The risk/reward ration is so good that the professional can afford to be wrong half the time and still come out ahead of the game.
The best time to buy and uptrend breakout on a daily chart when your analysis of the weekly chart suggests that an uptrend is developing. True breakouts are confirmed by heavy volume, while the false breakouts tend to have light volume. True breakouts are confirmed when the techical indicators reach new extreme highs or lows in the direction of the trend, while false breakouts are often marked by divergences between prices and indicators.
The longer the support or resistance area - its length of time or the number of hits it took - the stronger it is.
The tall the support or resistance zone, the stronger it is.
The greater the volume of trading in a support or resistance zone, the stronger it is.
Trading Rules:
1. Whenever the trend that I am riding approaches support or resistance, I need to tighten my protective stop.
2. Support and resistance are more important on long-term charts than on short-term charts. Weekly charts are more important than dailies. A good trader keeps an eye on several time frames and defers to the longer ones. If weekly trend is sailing through a clear zone, the fact that the daily trend is hitting support or resistance is less important. When a weekly trend approaches support or resistance, I should be more inclined to act.
3. Support and resistance levels are useful for placing stop-loss and protect-profit orders. The bottom of the congestion area is the bottom line support. If you buy and place your stop below that level, you give the uptrend plenty of room. More cautious traders buy after an upside breakout and place a stop in the middle of congestion area. A true upside breakout should not be followed by a pullback into the range. Reverse this procedure in downtrend.
Many trader avoid placing stops at round number.
True and False breakouts
Market spend more time in trading ranges than they do in trends. Most breakouts from trading ranges are false breakouts. They suck in trend-followers just before prices return into trading range. A false breakout is the bane of amateurs, but professional traders love them.
Professionals expect prices to fluctuate without going very far most of the time. They wait till an upside breakout stops reaching new highs or a downside breakout stops making new lows. Then they pounce - they trade the breakout (trade against it) and place a protective stop at the latest extreme point. It is a very tight stop, and their risk is low, while there is a big profit potential from a pullback into the congestion zone. The risk/reward ration is so good that the professional can afford to be wrong half the time and still come out ahead of the game.
The best time to buy and uptrend breakout on a daily chart when your analysis of the weekly chart suggests that an uptrend is developing. True breakouts are confirmed by heavy volume, while the false breakouts tend to have light volume. True breakouts are confirmed when the techical indicators reach new extreme highs or lows in the direction of the trend, while false breakouts are often marked by divergences between prices and indicators.
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