Resistance and support levels are instruments that are used for making trading strategies for all sorts of investments. Learn all about trading resistance and support levels here.
When it comes to binary options, they constitute an invaluable help for all successful traders’ decision making. That’s why you start trading resistance and support levels.
A resistance level is generated when prices have failed to exceed a certain price over the course of at least two periods. Based on this, you can presume that investors are not willing to buy the asset for a greater price than this. In other words: the price will not climb any higher unless investors change their minds. The more times an asset attempts to break through a resistance level, the more reliable it becomes as an indicator.
Continue reading the article, Trading Resistance and Support Levels, below the table…
When the market price approaches the resistance level that has been confirmed multiple times, you are well advised to no longer invest in the price rising. The resistance is likely to prevent prices for going any higher. Also, should the price break the resistance, it will anyway perform erratically as it gets closer to the resistance level. When a level that is well established is breached, you can quite securely invest in continually rising prices. Such an occurrence will usually result in a big bullish movement in the price.
When a resistance level has been broken it will probably become a support level. A support level functions in exactly the same way as a resistance level, only in reverse. In other words, it prevents the market from going below a certain price.
You, as a trader, should relate to them in the same way you relate to a resistance level: don’t predict that prices will continue to fall when the market gets near to a support level. When a support level is breached, in some cases it becomes a resistance level. It can happen that one price level changes between acting as a support level and a resistance level several times.
In the picture you see that resistance and support levels are practically never what you could call an exact science. On the whole, the resistance is not formed by one specific price, but rather a range of prices. At times, this can complicate things and make it difficult to tell exactly when a support or resistance level is in fact broken.
You can handle this challenge by looking at the level of momentum prices are moving with. Generally speaking a resistance or support level will break in a market that is generating big candles and moving forcefully in the direction of the level, be it support or resistance. Conversely, be cautious when you observe support or resistance levels broken by a candlestick formation indicative of an impending turnaround, such as a Doji.
In such an instance, a turnaround in the market is likely to occur. As ever when dealing with the markets, having a thorough understanding of candlesticks will help you interpret what exactly is going on.
At times you will find support and resistance levels formed near to levels with psychological importance. When an index approaches a certain number that has never been reached before, for example a stock that is about to get to $100 for the first time, some investors will see how far the ongoing trend has taken their investment already. This can make them cash in their profits by selling their holdings. This results in increasing supply, and decreasing demand. As a result prices tail off, making it hard to breach the psychological barrier, in this example that $100 stock price.
When such market conditions occur, trends will most often continue their main line. That being said, when the resistance has been broken, this will cause more demand. As a result, the resistance level can become a support level. You see that the mechanism works in two ways.
All binary traders need to know how to recognize support and resistance levels. They form crucial parts of all sorts of approaches to trading. Trading whilst ignoring resistance and support levels would mean incurring tremendous risk; a risk smart, long-term investors will most likely be unwilling to accept.
Next, why don’t you read our article about Pivot Points?