Support & Resistance
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RISK DISCLOSURE STATEMENT / DISCLAIMER AGREEMENT
Trading any financial market involves risk. This report and all and any of its contents are neither a solicitation nor an offer to Buy/Sell any financial market. The contents of this material are for general information and educational purposes only [contents shall also mean the website http://www.tradeonix.com or http://www.tradeonix.net or any website (“the sites”) the content is hosted on, and any email correspondence or newsletters or postings related to such website]. Every effort has been made to accurately represent this product and its potential. There is no guarantee that you will earn any money using the techniques, ideas and software in these materials. Examples in these materials are not to be interpreted as a promise or guarantee of earnings. Earning potential is entirely dependent on the person using the product, ideas and techniques. We do not purport this to be a “get rich scheme.” Although every attempt has been made to assure accuracy, we do not give any express or implied warranty as to its accuracy. We do not accept any liability for error or omission. Examples are provided for illustrative purposes only and should not be construed as investment advice or strategy. No representation is being made that any account or trader will or is likely to achieve profits or losses similar to those discussed in this report or on http://www.tradeonix.com or on the sites. Past performance is not indicative of future results. By purchasing any content, subscribing to our mailing list or using the website or contents of the website or materials provided herewith, you will be deemed to have accepted these terms and conditions in full as appear also on our site, as do our full earnings disclaimer and privacy policy and CFTC disclaimer and rule 4.41 to be read here with. So too, all the materials contained within this course, including this manual, whether they appear on our domain(s) or are in physical form, are protected by copyright. "Warning: The unauthorized reproduction or distribution of this copyrighted work is illegal. Criminal copyright infringement, including infringement without monetary gain, is investigated by the authorities and is punishable with imprisonment and a fine." We reserve all our rights in this regard. Alaziac Trading CC, in association with http://www.tradeonix.com, the sites, content, and its representatives do not and cannot give investment advice or invite customers or readers to engage in investments through this course or any part of it. The information provided in this content is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject us to any registration requirement within such jurisdiction or country. Hypothetical performance results have many inherent limitations, some of which are mentioned below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and actual results subsequently achieved by any particular trading program and method. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program or system in spite of the trading losses are material points that can also adversely affect trading results. There are numerous other factors related to the market in general or to the implementation of any specific trading program, which cannot be fully accounted for in the preparation of hypothetical performance results. All of which can adversely affect actual trading results. We reserve the right to change the set terms and conditions without notice. You can check for updates to this disclaimer at any time by visiting http://www.tradeonix.com Governing law: this policy and the use of this report / course / DVDs / eBook, provided in any form, and any content on the website are governed by the laws of the Republic of South Africa. If any dispute arises the parties have agreed to resolve it with the help of an arbitrator in the following location: Durban, South Africa. Further details on this are found under the Terms and Conditions on our site. Please ensure you have read and agree with all Terms and Conditions as set out on our site before using any of the materials. Your use and reliance on the materials is based on your acceptance of such Terms and Conditions and policies as appear on the site.
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Preface It's important that you understand a little bit about support and resistance and trendlines. These are tools that traders have been using since the beginning of trading time. They were valuable back then and they are still as valuable today. Support and resistance levels will give a trader a really good idea where price has a high probability of stalling, turning around, or taking off. Ignoring these levels at the time of a trade would mean that the trader is taking an unnecessary risk and placing an uninformed trade. Support, resistance, and trendlines are not difficult to learn, and if you can get that extra edge in your trading, you should go for it. When we trade the Tradeonix system, we are going to be looking for specific setups that will be presented to us with the indicators we use. Once we have determined that there is a trade setup, we will do very well to verify the trade signal by using either Support, Resistance, or a Trendline. This combination of Support, Resistance, and Trendline is something that I refer to as "SRT Analysis." You can trade SRT on its own. It's an entire trading system all by itself, but when you couple it with a system like Tradeonix, you have so much more potential to place winning trades. We will find trades that seem valid, but we won't want to take them because there is a trendline or an area of support or resistance in the way. Shortly after the trade not taken, we usually see that price bounces off these levels and the trade we would have taken would have lost. This SRT approach that you are going to learn is going to be an invaluable addition to any trading system or methodology.
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Support & Resistance This is the oldest play in the book. But don't think for one minute that because it's ancient that it's less valuable or of no use. The exact opposite is true. Support and resistance levels are a gift to traders, and we should be using them extensively. Price on a chart moves in a zig-zag motion, it will go up and down. If price is moving sideways, going up, or going down, it will always be doing it in a zigzag fashion.
Image 1
In the example above, you can clearly see the market is moving in a general upward motion to the middle of the chart, and then in a downward motion. Along the way up, it's making corrections by moving downwards. On the way down, it makes corrections by moving upward. This results in the zig-zag pattern we are familiar with.
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These points where the market changes direction are the areas we call Support and Resistance. Price will get to a certain level and then be forced to change direction. This can be a temporary and small change in direction, or it can be a bigger and more permanent change in direction. What's interesting about these levels is that when price is rejected once at a certain level, it will tend to be rejected there again.
Image 2
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Look at the image below. You will see it's the same image as the previous page, but red horizontal line shows us areas where price is affected and gets turned around.
Image 3
Price is initially rejected at the left of the image. This is the initial area of resistance. Next, price moves down but then tries to go back up again. It does move up, but when it approaches the previous level of rejection, it gets rejected again. Eventually price does manage to break though this level, but what happens next is really noteworthy. Once price moves above the initial level of resistance, it comes back down and bounces off that exact same level. This is now a level of support, and as you notice, price is rejected from this level 3 times in total before breaking below it. There are 3 things we can learn from this simple example: 1. Price will be attracted to a previous level of support or resistance. 2. Price will be rejected from these levels of support and resistance. 3. When price does break through a level of support or resistance, it will have a tendency to keep going. Let's get a little more specific. 6
Support This is a term from the old floor trader days. This was when you could only make money in a rising market. You've heard the "Buy low, sell high" adage. Support is a level where price drops to and gets turned back up. It will come down and then be supported as though it's hit an invisible floor. This is where the market is being supported from losing any further value.* *(In Forex you can make money in both directions, this is simply my explanation of the term and how it related to the old stock market) Generally, the support levels you see on a chart will be V shaped, this makes them easy to identify.
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There are major support levels and there are minor support levels. The major levels are the ones that really jump out at you from the chart, but there are more subtle levels that are acting as support.
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Price will make smaller zigzag moves as it makes its way. The downward motions made by the market in the above image aren't as pronounced as the upward movements, but they are still there and they are worth noting when we do our market assessment. In the image below, you will see the red lines from the previous chart, these show the major levels of support. There are very pronounced and easy to see. The green circles will show you the minor levels of support. The market movement in these areas are not as large, but the market did still make a rise and then a move down, and instead of continuing down, the market was turned away, or bounced, off a level.
Image 5
Below is the same chart but with a bold red line to show how the market moves. The small red arrows are all the different points where the market hits the imaginary floor.
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Image 6
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Below, we can see these areas of support on a Tradeonix chart. The additional indicators can make it a little harder to see, but once you look for them, they will jump out at you.
Image 7
The TBS forms its own visible levels of support. They are derived from the price but might be easier to see for a newer trader.
Image 8
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Resistance This is also a term from the old floor trader days. Resistance is when the price climbs up and hits a ceiling and resists moving any higher. The older stock traders would view this as the market being resistant to further gains. On a chart, resistance levels will look like peaks of a mountain, or an upside-down V shape. Like support levels, there are major and minor resistance levels. The major levels will be the peaks that the stand alone, very distinct and individual looking. The minor levels will be a little more subtle.
Image 9
These levels are not going to be a huge part of our trading, but they will be present in our decision-making. We are going to use support and resistance levels to help us decide if a trade should be taken or not, and they will also come in handy when we are looking for profit targets to be aiming for. The more we familiarize ourselves with these levels, the simpler our trading decisions will become.
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We can see the areas of resistance on the Tradeonix charts. They are clear and easy to spot after you know what you are looking for.
Image 10
Below are the same areas of resistance, but this time we can see them on the TBS. These levels are where the TBS starts or forms a high.
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Below is a line chart graphic of Support and Resistance levels. The line chart representation might be easier to look at and understand.
Image 12
Below is yet another image of the same graphic.
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Support Becomes Resistance Very often, when price breaks though one of these support or resistance levels, we will see that the price comes back to "test" this level. For example, when price finds a level of support, once it breaks below it, it will often come back up to meet this previous support level now as resistance.
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Below you will see an example of support turning into resistance on a real price chart.
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On the Tradeonix chart, we can see how support can turn into resistance.
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And another example.
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Resistance Becomes Support The opposite is also true, when the price finds a level of resistance, it may eventually break through and then turn around to use that level as support.
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Below you will see an example of resistance turning into support on a real price chart.
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Let's take a look at what a Tradeonix chart looks like when we see that resistance turns into support.
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And a second example...
Image 21
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Support and Resistance are AREAS Areas of support and resistance are called AREAS on purpose. They are quite often not going to be an exact price. Price will use a certain level as a level of support and/or resistance, but it will be an area. There is a halo effect around these levels and price will: 1. Touch the level exactly. 2. Not quite get to the level. 3. Push past the level a little ways.
Image 22
The area of support and resistance forms more of a support and resistance "zone". Price can get into the zone or touch the edge of the zone, and all the while the average of all these levels will be the valid area of support and resistance.
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Below you will see a live chart example of what we would consider a strong level of support and resistance. Price finds an area that it struggles with each time it gets close to it. It's rejected over and over again, sometimes at the exact price, sometimes above and other times just below.
Image 23
This zone is referred to as the Halo Effect.
Image 24
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Support and Resistance as Stop Loss This might be the oldest play in the book, and the reason we still use it is because it works! You will have heard that "Your stop goes above the recent swing high," or "Place your stop under the recent swing low." That's what this refers to: placing your stop loss at the most recent level of support or resistance. In the example below of a buy trade, we place our stop loss just below the most recent level of support. Not ON the levels, but a few pips BELOW the level.
Image 25
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In the example of a sell trade, we would place our stop loss a few pips above the most recent level of resistance. Again, you do not want to place your stop loss ON the level of resistance, but a few pips above it. The market has a way of coming back and testing these levels in the form of double tops and other chart patterns, so placing our stop a little higher will give the market that breathing room it might need to move freely without taking us out of the trade too early.
Image 26
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Support and Resistance as Targets Just like we can use support and resistance levels to find a trade, or decide to not take a trade, we can also use them to find suitable targets for out trading. Remember, support and resistance levels act as a kind of magnet to the market, so they will draw the price towards them.
Image 27
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Once we find our target level of support, we won't target the actual level, but just a little bit above it. Remember, Support and Resistance levels are areas, so we want to target the closest part, which would be the area just above the level itself.
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Target is easily hit!
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Below is an image where we use a level of resistance to get us into a buy trade. Our target will be a recent level of resistance. Price will be drawn or attracted to these levels, so they make excellent Take Profit levels.
Image 30
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Trendlines Trendlines are simple diagonal (angled) areas of support and resistance. Trendlines are one of my favorite trading tools, I find them to be very reliable and always easy to use. Trendlines are used when the market is moving either up or down. They can be used over a larger period of time (many candles), or they can be used over a shorter period of time (fewer candles). Implementing them in Tradeonix, I use trendlines over a shorter period of time (fewer candles), this gives me much more relevant areas of support or resistance that I can base a trade decision on. Trendlines are counter-trend in nature. When the price is dropping, a trendline will help us decide to take a long trade, and when the price is rising, a trendline will help us determine the best time to take a short trade. In order to draw a trendline, we will need 2 points of reference. We will be connecting either 2 highs or 2 lows that the market has made. The ideal trendlines for this system are drawn when we connect 2 consecutive highs or 2 consecutive lows (one right after the other). In order to use a trendline to facilitate a trade, the price will need to close past the trendline in the desirable direction. Since trendlines are indeed areas of support and resistance, the price will have a strong tendency to bounce off a trendline. With this being the case, we want to see the price close past the trendline to confirm a move in the proper direction. In a downward moving market, we will be drawing a trendline across the top of the price. The trendline will connect the highs as they are getting progressively lower. In a downtrend, the trendline will also be sloping downwards, across the top of the price. In an upward moving market, we will be drawing a trendline across the bottom of the price. The trendline will connect the lows as they are getting progressively higher. In an uptrend, the trendline will also be sloping upwards, across the bottom of the price.
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In the following pages you will see descriptions of trendlines and how they function. We will go much more in depth later on in the manual as we get into more detail when we combine trendlines with the actual system. For now these descriptions will give you a good idea of what we are looking for.
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Bullish Trendline We want to connect 2 consecutive highs in a downward moving market. When I say a downward moving market, all I mean by that is we want to see one high followed by a second high that is lower than the first. This can occur in an uptrend or a downtrend, all we are looking for is a high followed by a lower high. Once we spot our high followed by a lower high, we will draw the trendline across the tops connecting the peaks. We will be looking for price to move up and either bounce off the trendline and continue its move down, or for the price to close above the trendline signaling a move of the market to go higher. It's this close above the trendline that we are looking for in order to confirm a long trade. 1. Price makes a high followed by a lower high. These 2 points are connected and the trendline is projected ahead of the price. 2. Price pulls back to the trendline. 3. At this point, price could possibly bounce off the trendline. 4. Or price can break though the trendline suggesting a move upward.
Image 31
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Once the price closes above the trendline, we get the confirmation that the long trade we are looking for is a good trade. Below we see an image of a Bullish Trendline on a Tradeonix chart. There are three points of contact in this case, generally we see only 2, but the more points we have, the bigger the breakout can be.
Image 32
Here is another example of a Bullish Trendline on the Tradeonix system.
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Bearish Trendline We want to connect 2 consecutive lows in an upward moving market. When I say an upward moving market, all I mean by that is we want to see one low followed by a second low that is higher than the first. This can occur in an uptrend or a downtrend, all we are looking for is a low followed by a higher low. Once we spot our low followed by a higher low, we will draw the trendline across the bottoms connecting the valleys. We will be looking for price to move down and either bounce off the trendline and continue its move up, or for the price to close below the trendline signaling a move by the market to go lower. It's this close below the trendline that we are looking for in order to confirm a short trade. 1. Price makes a low followed by a higher low. These 2 points are connected and the trendline is projected ahead of the price. 2. Price pulls back to the trendline. 3. At this point, price could possibly bounce off the trendline. 4. Or price can break though the trendline suggesting a move downward.
Image 34
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Once the price closes below the trendline, we get the confirmation that the short trade we are looking for is a good trade. Bearish Trendlines will appear all over the place. These trendlines are my favorite. Here is an example of a Bearish Trendline on the Tradeonix charts.
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A second image of the Tradeonix system in regards to the Bearish Trendline.
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SRT Assessment SRT is an acronym for Support - Resistance - Trendline. The SRT method combines both Support and Resistance levels with Trendlines. It's a simple process and I will show you how it works. When we are considering a trade, we want to evaluate the levels that could get in the way of our trade or help the market move.
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Long SRT Evaluation 1. We consider a recent level of resistance. If price closes above this level of resistance, we can consider taking the long trade.
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2. If we don't get a move above the first level of resistance, but instead makes a lower high, we then draw a trendline connecting the falling highs. Once price closes above the trendline, we can consider taking the long trade.
Image 38
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Short SRT Evaluation 1. We consider a recent level of support. If price closes below this level of support, we can consider taking the short trade.
Image 39
2. If we don't get a move below the level of support, but instead makes a higher low, we then draw a trendline connecting the rising lows. Once price closes below the trendline, we can consider taking the short trade.
Image 40
It always starts with either a level of support or resistance, and if this level isn't taken out or broken by the price, then we get an opportunity to draw a trendline, and we can trade based on the trendline instead of the support levels.
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Support and Resistance and Ranges We use levels of support and resistance to establish, or define, tighter ranges that we don't want to trade. The market experiences periods of time when it is very flat and moving sideways more than up or down. This can happen after a larger market move when the market needs to rest, or we'll see it during the "off hours"... namely during the Asian session. We can find a level of resistance above the range and a level of support under the range and use this information as a No Trade Zone. Once price gets itself into a range, it will continue to range until it moves outside of the range boundaries. Below you see a sideways market that occurs after a large market move. The market goes very quiet and moves sideways.
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Once we see that there is a range forming, we can draw our levels of support and resistance to define the no trade zone.
Image 41
Once the range is established, we don't want to trade it until the market moves outside of the range.
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Finally the market breaks out of the range, and as you can see by the example, when the market breaks out of the range, it will continue to move in that direction.
Many traders like to trade the breakout candle, but to avoid a "false breakout," I like to wait for a pullback and trade that. In the case of Tradeonix, we would be looking to trade either an Aggressive or Conservative setup. Below is an example of a false breakout.
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Two Trendline Trades There are some great trading opportunities when we can draw 2 trendlines. We can call these the "Two Trendline Trades"! We will start with a Major Trendline and follow that up with a Minor Trendline. As price closes past the Minor Trendline, it will often carry on to the Major Trendline. First we will find that we can draw a trendline on the market. This first trendline will be what is called the Major Trendline.
Image 44
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As price progresses, it drops lower than the Major Trendline. It bounces and forms highs along the way down, allowing for us to draw another trendline at a steeper angle. This is the Minor Trendline.
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Now we wait for the price to close above the Minor Trendline. Once we get this close, we will enter the trade and target the Major Trendline.
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Price follows through and easily hits the Major Trendline as the target.
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Support and Resistance and Trendline Bounces Up until now we looked at support, resistance, and trendlines mainly for their ability to break though and give us a trading signal. These levels also work really nicely as trading opportunities as the price bounces off them. This is done by most trades as support turns into resistance, or resistance turns into support. Traders will actually look for these opportunities. We discussed this earlier in the manual, but let's now look at support being support and resistance being resistance.
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Below are images of trendline acting as great levels of angles support and resistance. An upward trendline gives us opportunities to buy when price bounces off it.
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A downward trendline gives us plenty of chances to sell as price bounces off it. This trendline provides us with areas of angles resistance.
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Trendlines, Support, and Resistance are incredibly powerful tools and we are able to use them on a regular basis. They will help us take a trade, they will help us stay out of a trade, they will help us find a target for a trade. Use them in your trading each time you trade, they are a great tool for market assessment and they will help you be more profitable.
May all your dreams come true!
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RISK DISCLOSURE STATEMENT / DISCLAIMER AGREEMENT
Trading any financial market involves risk. This report and all and any of its contents are neither a solicitation nor an offer to Buy/Sell any financial market. The contents of this material are for general information and educational purposes only [contents shall also mean the website http://www.tradeonix.com or http://www.tradeonix.net or any website (“the sites”) the content is hosted on, and any email correspondence or newsletters or postings related to such website]. Every effort has been made to accurately represent this product and its potential. There is no guarantee that you will earn any money using the techniques, ideas and software in these materials. Examples in these materials are not to be interpreted as a promise or guarantee of earnings. Earning potential is entirely dependent on the person using the product, ideas and techniques. We do not purport this to be a “get rich scheme.” Although every attempt has been made to assure accuracy, we do not give any express or implied warranty as to its accuracy. We do not accept any liability for error or omission. Examples are provided for illustrative purposes only and should not be construed as investment advice or strategy. No representation is being made that any account or trader will or is likely to achieve profits or losses similar to those discussed in this report or on http://www.tradeonix.com or on the sites. Past performance is not indicative of future results. By purchasing any content, subscribing to our mailing list or using the website or contents of the website or materials provided herewith, you will be deemed to have accepted these terms and conditions in full as appear also on our site, as do our full earnings disclaimer and privacy policy and CFTC disclaimer and rule 4.41 to be read here with. So too, all the materials contained within this course, including this manual, whether they appear on our domain(s) or are in physical form, are protected by copyright. "Warning: The unauthorized reproduction or distribution of this copyrighted work is illegal. Criminal copyright infringement, including infringement without monetary gain, is investigated by the authorities and is punishable with imprisonment and a fine." We reserve all our rights in this regard. Alaziac Trading CC, in association with http://www.tradeonix.com, the sites, content, and its representatives do not and cannot give investment advice or invite customers or readers to engage in investments through this course or any part of it. The information provided in this content is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject us to any registration requirement within such jurisdiction or country. Hypothetical performance results have many inherent limitations, some of which are mentioned below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and actual results subsequently achieved by any particular trading program and method. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program or system in spite of the trading losses are material points that can also adversely affect trading results. There are numerous other factors related to the market in general or to the implementation of any specific trading program, which cannot be fully accounted for in the preparation of hypothetical performance results. All of which can adversely affect actual trading results. We reserve the right to change the set terms and conditions without notice. You can check for updates to this disclaimer at any time by visiting http://www.tradeonix.com Governing law: this policy and the use of this report / course / DVDs / eBook, provided in any form, and any content on the website are governed by the laws of the Republic of South Africa. If any dispute arises the parties have agreed to resolve it with the help of an arbitrator in the following location: Durban, South Africa. Further details on this are found under the Terms and Conditions on our site. Please ensure you have read and agree with all Terms and Conditions as set out on our site before using any of the materials. Your use and reliance on the materials is based on your acceptance of such Terms and Conditions and policies as appear on the site.
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Preface It's important that you understand a little bit about support and resistance and trendlines. These are tools that traders have been using since the beginning of trading time. They were valuable back then and they are still as valuable today. Support and resistance levels will give a trader a really good idea where price has a high probability of stalling, turning around, or taking off. Ignoring these levels at the time of a trade would mean that the trader is taking an unnecessary risk and placing an uninformed trade. Support, resistance, and trendlines are not difficult to learn, and if you can get that extra edge in your trading, you should go for it. When we trade the Tradeonix system, we are going to be looking for specific setups that will be presented to us with the indicators we use. Once we have determined that there is a trade setup, we will do very well to verify the trade signal by using either Support, Resistance, or a Trendline. This combination of Support, Resistance, and Trendline is something that I refer to as "SRT Analysis." You can trade SRT on its own. It's an entire trading system all by itself, but when you couple it with a system like Tradeonix, you have so much more potential to place winning trades. We will find trades that seem valid, but we won't want to take them because there is a trendline or an area of support or resistance in the way. Shortly after the trade not taken, we usually see that price bounces off these levels and the trade we would have taken would have lost. This SRT approach that you are going to learn is going to be an invaluable addition to any trading system or methodology.
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Support & Resistance This is the oldest play in the book. But don't think for one minute that because it's ancient that it's less valuable or of no use. The exact opposite is true. Support and resistance levels are a gift to traders, and we should be using them extensively. Price on a chart moves in a zig-zag motion, it will go up and down. If price is moving sideways, going up, or going down, it will always be doing it in a zigzag fashion.
Image 1
In the example above, you can clearly see the market is moving in a general upward motion to the middle of the chart, and then in a downward motion. Along the way up, it's making corrections by moving downwards. On the way down, it makes corrections by moving upward. This results in the zig-zag pattern we are familiar with.
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These points where the market changes direction are the areas we call Support and Resistance. Price will get to a certain level and then be forced to change direction. This can be a temporary and small change in direction, or it can be a bigger and more permanent change in direction. What's interesting about these levels is that when price is rejected once at a certain level, it will tend to be rejected there again.
Image 2
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Look at the image below. You will see it's the same image as the previous page, but red horizontal line shows us areas where price is affected and gets turned around.
Image 3
Price is initially rejected at the left of the image. This is the initial area of resistance. Next, price moves down but then tries to go back up again. It does move up, but when it approaches the previous level of rejection, it gets rejected again. Eventually price does manage to break though this level, but what happens next is really noteworthy. Once price moves above the initial level of resistance, it comes back down and bounces off that exact same level. This is now a level of support, and as you notice, price is rejected from this level 3 times in total before breaking below it. There are 3 things we can learn from this simple example: 1. Price will be attracted to a previous level of support or resistance. 2. Price will be rejected from these levels of support and resistance. 3. When price does break through a level of support or resistance, it will have a tendency to keep going. Let's get a little more specific. 6
Support This is a term from the old floor trader days. This was when you could only make money in a rising market. You've heard the "Buy low, sell high" adage. Support is a level where price drops to and gets turned back up. It will come down and then be supported as though it's hit an invisible floor. This is where the market is being supported from losing any further value.* *(In Forex you can make money in both directions, this is simply my explanation of the term and how it related to the old stock market) Generally, the support levels you see on a chart will be V shaped, this makes them easy to identify.
Image 4
There are major support levels and there are minor support levels. The major levels are the ones that really jump out at you from the chart, but there are more subtle levels that are acting as support.
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Price will make smaller zigzag moves as it makes its way. The downward motions made by the market in the above image aren't as pronounced as the upward movements, but they are still there and they are worth noting when we do our market assessment. In the image below, you will see the red lines from the previous chart, these show the major levels of support. There are very pronounced and easy to see. The green circles will show you the minor levels of support. The market movement in these areas are not as large, but the market did still make a rise and then a move down, and instead of continuing down, the market was turned away, or bounced, off a level.
Image 5
Below is the same chart but with a bold red line to show how the market moves. The small red arrows are all the different points where the market hits the imaginary floor.
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Image 6
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Below, we can see these areas of support on a Tradeonix chart. The additional indicators can make it a little harder to see, but once you look for them, they will jump out at you.
Image 7
The TBS forms its own visible levels of support. They are derived from the price but might be easier to see for a newer trader.
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Resistance This is also a term from the old floor trader days. Resistance is when the price climbs up and hits a ceiling and resists moving any higher. The older stock traders would view this as the market being resistant to further gains. On a chart, resistance levels will look like peaks of a mountain, or an upside-down V shape. Like support levels, there are major and minor resistance levels. The major levels will be the peaks that the stand alone, very distinct and individual looking. The minor levels will be a little more subtle.
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These levels are not going to be a huge part of our trading, but they will be present in our decision-making. We are going to use support and resistance levels to help us decide if a trade should be taken or not, and they will also come in handy when we are looking for profit targets to be aiming for. The more we familiarize ourselves with these levels, the simpler our trading decisions will become.
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We can see the areas of resistance on the Tradeonix charts. They are clear and easy to spot after you know what you are looking for.
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Below are the same areas of resistance, but this time we can see them on the TBS. These levels are where the TBS starts or forms a high.
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Below is a line chart graphic of Support and Resistance levels. The line chart representation might be easier to look at and understand.
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Below is yet another image of the same graphic.
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Support Becomes Resistance Very often, when price breaks though one of these support or resistance levels, we will see that the price comes back to "test" this level. For example, when price finds a level of support, once it breaks below it, it will often come back up to meet this previous support level now as resistance.
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Below you will see an example of support turning into resistance on a real price chart.
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On the Tradeonix chart, we can see how support can turn into resistance.
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And another example.
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Resistance Becomes Support The opposite is also true, when the price finds a level of resistance, it may eventually break through and then turn around to use that level as support.
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Below you will see an example of resistance turning into support on a real price chart.
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Let's take a look at what a Tradeonix chart looks like when we see that resistance turns into support.
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And a second example...
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Support and Resistance are AREAS Areas of support and resistance are called AREAS on purpose. They are quite often not going to be an exact price. Price will use a certain level as a level of support and/or resistance, but it will be an area. There is a halo effect around these levels and price will: 1. Touch the level exactly. 2. Not quite get to the level. 3. Push past the level a little ways.
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The area of support and resistance forms more of a support and resistance "zone". Price can get into the zone or touch the edge of the zone, and all the while the average of all these levels will be the valid area of support and resistance.
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Below you will see a live chart example of what we would consider a strong level of support and resistance. Price finds an area that it struggles with each time it gets close to it. It's rejected over and over again, sometimes at the exact price, sometimes above and other times just below.
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This zone is referred to as the Halo Effect.
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Support and Resistance as Stop Loss This might be the oldest play in the book, and the reason we still use it is because it works! You will have heard that "Your stop goes above the recent swing high," or "Place your stop under the recent swing low." That's what this refers to: placing your stop loss at the most recent level of support or resistance. In the example below of a buy trade, we place our stop loss just below the most recent level of support. Not ON the levels, but a few pips BELOW the level.
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In the example of a sell trade, we would place our stop loss a few pips above the most recent level of resistance. Again, you do not want to place your stop loss ON the level of resistance, but a few pips above it. The market has a way of coming back and testing these levels in the form of double tops and other chart patterns, so placing our stop a little higher will give the market that breathing room it might need to move freely without taking us out of the trade too early.
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Support and Resistance as Targets Just like we can use support and resistance levels to find a trade, or decide to not take a trade, we can also use them to find suitable targets for out trading. Remember, support and resistance levels act as a kind of magnet to the market, so they will draw the price towards them.
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Once we find our target level of support, we won't target the actual level, but just a little bit above it. Remember, Support and Resistance levels are areas, so we want to target the closest part, which would be the area just above the level itself.
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Target is easily hit!
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Below is an image where we use a level of resistance to get us into a buy trade. Our target will be a recent level of resistance. Price will be drawn or attracted to these levels, so they make excellent Take Profit levels.
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Trendlines Trendlines are simple diagonal (angled) areas of support and resistance. Trendlines are one of my favorite trading tools, I find them to be very reliable and always easy to use. Trendlines are used when the market is moving either up or down. They can be used over a larger period of time (many candles), or they can be used over a shorter period of time (fewer candles). Implementing them in Tradeonix, I use trendlines over a shorter period of time (fewer candles), this gives me much more relevant areas of support or resistance that I can base a trade decision on. Trendlines are counter-trend in nature. When the price is dropping, a trendline will help us decide to take a long trade, and when the price is rising, a trendline will help us determine the best time to take a short trade. In order to draw a trendline, we will need 2 points of reference. We will be connecting either 2 highs or 2 lows that the market has made. The ideal trendlines for this system are drawn when we connect 2 consecutive highs or 2 consecutive lows (one right after the other). In order to use a trendline to facilitate a trade, the price will need to close past the trendline in the desirable direction. Since trendlines are indeed areas of support and resistance, the price will have a strong tendency to bounce off a trendline. With this being the case, we want to see the price close past the trendline to confirm a move in the proper direction. In a downward moving market, we will be drawing a trendline across the top of the price. The trendline will connect the highs as they are getting progressively lower. In a downtrend, the trendline will also be sloping downwards, across the top of the price. In an upward moving market, we will be drawing a trendline across the bottom of the price. The trendline will connect the lows as they are getting progressively higher. In an uptrend, the trendline will also be sloping upwards, across the bottom of the price.
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In the following pages you will see descriptions of trendlines and how they function. We will go much more in depth later on in the manual as we get into more detail when we combine trendlines with the actual system. For now these descriptions will give you a good idea of what we are looking for.
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Bullish Trendline We want to connect 2 consecutive highs in a downward moving market. When I say a downward moving market, all I mean by that is we want to see one high followed by a second high that is lower than the first. This can occur in an uptrend or a downtrend, all we are looking for is a high followed by a lower high. Once we spot our high followed by a lower high, we will draw the trendline across the tops connecting the peaks. We will be looking for price to move up and either bounce off the trendline and continue its move down, or for the price to close above the trendline signaling a move of the market to go higher. It's this close above the trendline that we are looking for in order to confirm a long trade. 1. Price makes a high followed by a lower high. These 2 points are connected and the trendline is projected ahead of the price. 2. Price pulls back to the trendline. 3. At this point, price could possibly bounce off the trendline. 4. Or price can break though the trendline suggesting a move upward.
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Once the price closes above the trendline, we get the confirmation that the long trade we are looking for is a good trade. Below we see an image of a Bullish Trendline on a Tradeonix chart. There are three points of contact in this case, generally we see only 2, but the more points we have, the bigger the breakout can be.
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Here is another example of a Bullish Trendline on the Tradeonix system.
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Bearish Trendline We want to connect 2 consecutive lows in an upward moving market. When I say an upward moving market, all I mean by that is we want to see one low followed by a second low that is higher than the first. This can occur in an uptrend or a downtrend, all we are looking for is a low followed by a higher low. Once we spot our low followed by a higher low, we will draw the trendline across the bottoms connecting the valleys. We will be looking for price to move down and either bounce off the trendline and continue its move up, or for the price to close below the trendline signaling a move by the market to go lower. It's this close below the trendline that we are looking for in order to confirm a short trade. 1. Price makes a low followed by a higher low. These 2 points are connected and the trendline is projected ahead of the price. 2. Price pulls back to the trendline. 3. At this point, price could possibly bounce off the trendline. 4. Or price can break though the trendline suggesting a move downward.
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Once the price closes below the trendline, we get the confirmation that the short trade we are looking for is a good trade. Bearish Trendlines will appear all over the place. These trendlines are my favorite. Here is an example of a Bearish Trendline on the Tradeonix charts.
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A second image of the Tradeonix system in regards to the Bearish Trendline.
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SRT Assessment SRT is an acronym for Support - Resistance - Trendline. The SRT method combines both Support and Resistance levels with Trendlines. It's a simple process and I will show you how it works. When we are considering a trade, we want to evaluate the levels that could get in the way of our trade or help the market move.
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Long SRT Evaluation 1. We consider a recent level of resistance. If price closes above this level of resistance, we can consider taking the long trade.
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2. If we don't get a move above the first level of resistance, but instead makes a lower high, we then draw a trendline connecting the falling highs. Once price closes above the trendline, we can consider taking the long trade.
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Short SRT Evaluation 1. We consider a recent level of support. If price closes below this level of support, we can consider taking the short trade.
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2. If we don't get a move below the level of support, but instead makes a higher low, we then draw a trendline connecting the rising lows. Once price closes below the trendline, we can consider taking the short trade.
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It always starts with either a level of support or resistance, and if this level isn't taken out or broken by the price, then we get an opportunity to draw a trendline, and we can trade based on the trendline instead of the support levels.
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Support and Resistance and Ranges We use levels of support and resistance to establish, or define, tighter ranges that we don't want to trade. The market experiences periods of time when it is very flat and moving sideways more than up or down. This can happen after a larger market move when the market needs to rest, or we'll see it during the "off hours"... namely during the Asian session. We can find a level of resistance above the range and a level of support under the range and use this information as a No Trade Zone. Once price gets itself into a range, it will continue to range until it moves outside of the range boundaries. Below you see a sideways market that occurs after a large market move. The market goes very quiet and moves sideways.
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Once we see that there is a range forming, we can draw our levels of support and resistance to define the no trade zone.
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Once the range is established, we don't want to trade it until the market moves outside of the range.
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Finally the market breaks out of the range, and as you can see by the example, when the market breaks out of the range, it will continue to move in that direction.
Many traders like to trade the breakout candle, but to avoid a "false breakout," I like to wait for a pullback and trade that. In the case of Tradeonix, we would be looking to trade either an Aggressive or Conservative setup. Below is an example of a false breakout.
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Two Trendline Trades There are some great trading opportunities when we can draw 2 trendlines. We can call these the "Two Trendline Trades"! We will start with a Major Trendline and follow that up with a Minor Trendline. As price closes past the Minor Trendline, it will often carry on to the Major Trendline. First we will find that we can draw a trendline on the market. This first trendline will be what is called the Major Trendline.
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As price progresses, it drops lower than the Major Trendline. It bounces and forms highs along the way down, allowing for us to draw another trendline at a steeper angle. This is the Minor Trendline.
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Now we wait for the price to close above the Minor Trendline. Once we get this close, we will enter the trade and target the Major Trendline.
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Price follows through and easily hits the Major Trendline as the target.
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Support and Resistance and Trendline Bounces Up until now we looked at support, resistance, and trendlines mainly for their ability to break though and give us a trading signal. These levels also work really nicely as trading opportunities as the price bounces off them. This is done by most trades as support turns into resistance, or resistance turns into support. Traders will actually look for these opportunities. We discussed this earlier in the manual, but let's now look at support being support and resistance being resistance.
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Below are images of trendline acting as great levels of angles support and resistance. An upward trendline gives us opportunities to buy when price bounces off it.
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A downward trendline gives us plenty of chances to sell as price bounces off it. This trendline provides us with areas of angles resistance.
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Trendlines, Support, and Resistance are incredibly powerful tools and we are able to use them on a regular basis. They will help us take a trade, they will help us stay out of a trade, they will help us find a target for a trade. Use them in your trading each time you trade, they are a great tool for market assessment and they will help you be more profitable.
May all your dreams come true!
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