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Chapter 8, Part I. Support and Resistance Page 2

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 15, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Drawing Support and Resistance on the chart

    First of all remember that support and resistance are not precise numbers, they are more areas. And the larger your time frame, the wider this area. For instance, on a monthly chart the area of support/resistance could be 100+pips, while on 5-minite chart hardly more than 10 pips. It means that even if you will see that price has temporally penetrated a support or resistance level, this does not always mean that this level is broken. It all depends on the depth and way of penetration, and here we can offer a simple and widely-applied rule: If the market has not closed below/above support/resistance then it is just testing it and this level is still valid. You can easily see it with bar chart or candlestick (charts #1 and #2). See, although the market has penetrated this level number of times it has not closed below it - close price in of all bars/candles stays above the support level (I hope you remember how to determine the close price of bars and candles). By the way, later market retests this level once again – see the touch just above our logo.

    #1 EUR/USD 4-hour chart – support tested, but not terminated

    #2 … so the same at bar chart

    Pipruit: So, why have you previously said that support and resistance levels are tricky? I mean although they are quite simple, all traders interpret them and use differently – you even give me the rule how to determine – has particular level been broken already or not…
    Commander in Pips: Ok, just for your clarification I’ll show you chart #3. Can you tell me – was this level broken or not?

    #3 Is this level broken or not?

    Pipruit: Wow, according to your rule – it was, but I sense that somehow it not… Yes, the market has shown a close below it, but then returned back very fast and accelerated in the opposite direction. What a move!​

    Commander in Pips: …and?

    Pipruit: I don’t know. You’re right – it’s more sophisticated then seems before. What should we do then, how we can estimate the real breakout?​

    Commander in Pips: Well, maybe my answer seems frustrating to you, but – there is no definite and 100% way to do that. But, still, we have some additional rules that could help with this and increase the probability of estimation of real breakout. But before it you should understand the market mechanics of trading or support/resistance levels. This will help you much, believe me.

    Pipruit: Cool!​
    #1 Sive Morten, Dec 15, 2013
    Lasted edited by : Feb 11, 2016
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