The POWER of Historical Support and Resistance
Fellow traders,
No matter where you are on your journey, whether you're just starting out or you've freed yourself from the shackles of the 9-5 lifestyle, it's easy to get stuck in a rut.
Over the last few years, I've been more and more selective about the trades I make. After all, capital preservation is absolutely necessary if you're to trade for a living.
But while I make a conscious effort every day to find reasons why NOT to take a trade, I'm equally excited when I see price in or approaching key price levels.
One aspect of technical analysis that I put down to dramatically increasing my profitability in trading is when I learnt how to correctly plot support and resistance lines.
As we can see here on the NZDJPY, price has resisted at 82.500 after a HUGE bullish run and formed a parallel wedge.
So why have I plotted this line and what's so important about this level?
Firstly, I plotted this line on the monthly chart, which means there has been multiple times in which prices has been resisted OR supported at this level.
Secondly, it has been plotted at a round number. This is a psychological level and means that orders, stop losses and targets are more likely to have been set at this level.
Taking a step back and letting historical data do it's job makes it clear and simple. How many times have you looked at an hourly, 30 minute or even 5 minute chart and spotted dozens of support and resistance lines, only to zoom out and see that your chart is a mess.
A MONTHLY S/R LINE IS STRONGER THAN A WEEKLY S/R, WHICH IS STRONGER THAN A DAILY S/R, WHICH IS STRONGER THAN A..... you get the idea.
One tip that helps me is to color code my lines so I know exactly which time frame it has been plotted on and thus, know how much I can rely on it when other factors of confluence occur.
If you LEARN how to plot your levels correctly, understand the different importance of monthly, weekly, daily and intraday S/R lines, you'll have a solid base to anticipate where price is likely to respond.
No matter where you are on your journey, whether you're just starting out or you've freed yourself from the shackles of the 9-5 lifestyle, it's easy to get stuck in a rut.
Over the last few years, I've been more and more selective about the trades I make. After all, capital preservation is absolutely necessary if you're to trade for a living.
But while I make a conscious effort every day to find reasons why NOT to take a trade, I'm equally excited when I see price in or approaching key price levels.
One aspect of technical analysis that I put down to dramatically increasing my profitability in trading is when I learnt how to correctly plot support and resistance lines.
As we can see here on the NZDJPY, price has resisted at 82.500 after a HUGE bullish run and formed a parallel wedge.
So why have I plotted this line and what's so important about this level?
Firstly, I plotted this line on the monthly chart, which means there has been multiple times in which prices has been resisted OR supported at this level.
Secondly, it has been plotted at a round number. This is a psychological level and means that orders, stop losses and targets are more likely to have been set at this level.
Taking a step back and letting historical data do it's job makes it clear and simple. How many times have you looked at an hourly, 30 minute or even 5 minute chart and spotted dozens of support and resistance lines, only to zoom out and see that your chart is a mess.
A MONTHLY S/R LINE IS STRONGER THAN A WEEKLY S/R, WHICH IS STRONGER THAN A DAILY S/R, WHICH IS STRONGER THAN A..... you get the idea.
One tip that helps me is to color code my lines so I know exactly which time frame it has been plotted on and thus, know how much I can rely on it when other factors of confluence occur.
If you LEARN how to plot your levels correctly, understand the different importance of monthly, weekly, daily and intraday S/R lines, you'll have a solid base to anticipate where price is likely to respond.