12 Aug Technical Trading Is All About Support And Resistance
The following is a reprint of a post I wrote on my ADVFN forum, but I think it stands to reason that it qualifies for a place here on the blog.
I think learning how to trade from charts is very easy.
All you need is some horizontal Support and Resistance lines on your chart, and you buy or sell from them, simple as that.
It is our own shortcomings that allow us to lose money in trading, mainly over leverage which I’ve written about before in this post. Over leverage often means running stops too tightly thus not allowing a good trade to breathe, or, taking profits too quickly because you don’t want to lose a large profit as quickly as you just made it. This strategy will obviously see you lose in the longer term because you are effectively allowing losses to be greater than the small wins you take.
However, the swing trade log to the right of this post proves that anyone can make money in trading by buying support and selling resistance. There will be frustrating times and you’ll get mentally hurt by good profits of 100 points or more being stopped out at breakeven or even for a loss, but to make the big points (200 or more) you must allow the trade to breathe, and the only way to do that is with small stakes and wide, yet calculated stops.
Here are some completely random examples of resistance and support from some current charts I was looking at earlier tonight. Most of these lines have been on my charts for YEARS….It’s quite rare nowadays that I add or remove S/R lines unless new S/R’s are formed:
This 4 hourly chart which displays 2 or 3 Support and Resistance lines that have been in place for years shows that entries from these lines are relatively straight forward and generally profitable, though it is you that needs to decide when to take profits and where to place stop losses:
Some whipsaw at one of the past resistance levels, but any losses incurred would have been small in comparison to the huge gains on the winners. GBP:CHF appears to be finding support at the 1.5096 Support level but I’ve not been convinced enough to re-enter this trade following a previous stop out:
Fib extension not yet proven support, but as it coincides with a measured move target from the previous “box trade” it probably will become future S/R:
GBP:CAD has simply bounced up and down this 1200 point range for 2 years. The real trade will be a future “Box Trade” retest of the range once price eventually breaks out, whether that be up or down:
It’s worth pointing out that I do have different S/R’s on different time frames and these fit with the time scales I tend to trade on those different time frames.