Technical Analysis – Support & Resistance
The cornerstone of technical analysis amongst the professionals on our trading floor is the effective identification and utilisation of support and resistance. It is easy for novice traders to get sidetracked by the plethora of tools, indicators and studies that exist within the field of technical analysis and to overlook the basic, essential and ultimately profitable principles. However, if a trader is able to consistently identify where the market will find support or resistance and how significant the market’s reaction to the price level will be, then he will be able to make effective, profitable trading decisions.
Charts, whether candlestick, bar, line or Market Profile, allow us to identify prices, or price areas, where we believe the market will reverse. So, at a support level we would anticipate buying to overcome selling and for prices to rally. By the same token, at a resistance level we would look for selling to overcome buying and for prices to fall. Once we have identified potential support and resistance we need to form a hypothesis as to size of the reversal we expect once our price level has been reached. This allows us to formulate a clear expectation of the profit potential of any trade and the associated loss we are willing to take. We identify the significance of our support and resistance levels by understanding the overall trend, or lack thereof, of our chosen market. As traders we should always have a view on the overall direction of the market (up, down or sideways) in order to understand the significance of our support and resistance. There is a distinct difference between executing a short in a strong bear market versus a strong bull market.
The ability to identify support and resistance and its associated significance is developed and improved by observing, interacting with and analysing the markets over time; a skill that Futex Academy has developed and refined over more than a decade. However, novice traders must also learn to assess the validity of their support and resistance in real-time by using the price action that occurs around these levels as a filter. This advanced skill is a key element that separates the professional from the retail trader. Its effective implementation requires expert guidance, repeated practice and lightning fast/professional-level market access. Combining support and resistance with real-time price action and trade execution forms a key component of our flagship Trading Floor Training programme.
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Tags: bear market, bull market, direction, indicators, prices, reversal, studies, tools, trend
