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Trading the Jam way

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Juno Beach
 
Trading Experience: Advanced
Platform: Ninja and TS
Broker/Data: Optimus Futures / Matt
Favorite Futures: multiple
 
JamTheTrader's Avatar
 
Posts: 135 since Sep 2009

Support and Resistance - Basics

In their classic book Technical Analysis of Stock Trends, Edwards and Magee defined support as "buying (actual or potential) sufficient in volume to halt a downward in prices for an appreciable period," and resistance as "selling (actual or potential) sufficient in volume to satisfy all bids and hence stop prices from going higher for a time."
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  • Support Zones represent a concentration of demand
  • Resistance Zones represent a concentration of supply
  • Expect support at previous Low
  • Expect resistance at previous highs
What Is Support?
Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. The logic dictates that as the price declines towards support and gets
cheaper, buyers become more inclined to buy and sellers become less inclined to sell. By the time the price reaches the support level, it is believed that demand will overcome supply and prevent
the price from falling below support.

Where Is Support Established?
Previous bottoms and consolidation areas below our current price provide our support zones, the higher the time frame the more relevant the support zone becomes. Technical analysis is not an
exact science and it is sometimes difficult to set exact support levels. In addition, price movements can be volatile and dip below support briefly.

What Is Resistance?

Resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further. The logic dictates that as the price advances towards resistance, sellers
become more inclined to sell and buyers become less inclined to buy. By the time the price reaches the resistance level, it is believed that supply will overcome demand and prevent the price from
rising above resistance.

Where Is Resistance Established?

Previous tops and consolidation areas above the current price provide resistance zones. In addition, price movements can be volatile and rise above resistance briefly.

Support and resistance areas are not guaranteed places that the market will stop and reverse, but instead are areas that you should take note of when trading. There are several pieces of information that these areas can hold for us as we approach them. Let's say we are at a double bottom and buyers are more enthusiastic then sellers at this area, they will continually increase their bids until their orders have been filled. On the other hand, if sellers are more in control, you might get a slow down at the area or a temporary rally that fails as sellers continue to liquidate, reverse, or take new short positions and drive the market through that double bottom.

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