Home Trading Strategies The Truth About Support and Resistance (Most Traders Get It Wong!)

The Truth About Support and Resistance (Most Traders Get It Wong!)

The Truth About Support and Resistance (Most Traders Get It Wong!)

hey hey what’s up my friend so in today’s episode I want to talk about the truth about support resistance there nobody tells you so here’s the thing right it doesn’t matter whether you’re a swing trader a day trader position trader counter trend trader support resistance is one of the most commonly used tools in technical analysis and I find it’s important to really understand right how this particular tool works and what’s funny is that it is very popular but it’s pretty done difficult to do a PEC test on it because support resistance let’s be honest it is subjective so what I’m about to share with you is based on my experience based on my experience years of trading support resistance in peace of mind beliefs I could be wrong so what I’m about to share with you right take the concepts take the idea validate for yourself and find out whether it’s true for you or not so the first thing I wanna share with you is that supporting resistance it uh the more times right utensil port within a short period of time the weaker it becomes for example let’s say you know the shares of MacDonald a huge institutions that want to buy shares of MacDonald at 50 or less let’s say they wanna buy a hundred million shares of McDonald’s so what’s gonna happen is that whenever price retest 50 dollars at McDonald’s you can you can imagine right that out of this hundred million shares so a number of them is gonna get few so let’s say 50 million shares of McDonald get fill on the first test then the price bounce higher then a retest back $50 maybe say thirty million shares can fill the price really higher then the price came back maybe after a few days and fill up the last remaining 20 million of shares and any bounce higher and imagine this right once all the hundred million shares are filled and let’s keep things simple and let’s say no new order flow comes in and the price retest $50 once again do you think there will be a bounce or will the $50 level the price level brick well the price is likely to break right so this is why I say that the more times price tests write a level within a short period of time the weaker it becomes because order flow gets eaten up alright and if no new order flow comes in right that’s where the level breakdown it doesn’t happen all the time but generally this is the case so this is why patterns are like ascending triangle it’s a bullish chat pattern because traders who are wanting to sell the resistance once all these selling pressure resistance is used up this is where price makes a break up likewise for this ending triangle descending triangle is just the example of the Macdonald one we talked about earlier whenever price retest support a bunch of autoflow get filled up if no new order flow comes in you retest multiple times this is where the support level or area is about to break down okay so that’s the first thing right the more time supported resistance is tested within a short period of time the weaker it becomes and I know this goes against most textbooks that tells you the more times it it’s being tested the stronger it becomes but based on my experience yes that’s not the case number two the longer the price is away from a level the most significant it becomes okay so let’s me take you back to 2000 right at the dot-com bubble right Nasdaq approach just approached near 5008 collapse all the way down and he only received revisited leave $5,000 mark almost 20 years later or 20 years later so you can imagine a $5,000 level has held up for close to 20 years it is a significant level okay and and once the level is significant right you want to be paying attention to it because a lot of traders will be watching their level for example those who bought in 2000 near the $5,000 ma they watch the SN price collapse for good close to 20 years and it’s only after two years do they see right the price revisiting right the highs after 20 years so they feel a lot of pain okay magic in the rate for good 20 years so that level becomes very significant I’m not saying that the more significant in is right the more the reversal will occur that’s not true because if it breaks out of it right now you can imagine it at the pond right the price is now trading at all-time highs and it’s a good chance that it will follow through higher but if you look through the charts again right off nest day okay the recent times when in retest at $5,000 sorry for the first time in close to 20 years you noticed at the price it didn’t just break out of $5,000 just like that it came into the 5000 level $5,000 level and any hesitated it consolidated for what because his hesitation in the market people are people know right at this level right in 2000 there was a heist right Willie breakout hire there has hesitating so that’s why the price consolidated for a good few weeks alright before we finally broke out of 5000 into to where it is right now okay so the more time the longer right in the price is away from a level the more significant it becomes and this brings me to my point support resistance are when support is broken it becomes previous support becomes resistance when resistance is broken it becomes previous resistance becomes upon and there’s a couple of reasons for this so let’s say back to to a typical stock again let’s say the shares of Apple right as a resistance hundred dollars when the resistance has been in play for let’s say five six months so when the price breaks our own resistance and her dollars and let’s say quickly move up to 120 130 there will be a group of traders who miss the move and it kind of regret I mean should have bought a hundred dollars right look you know know now that the share prices take off and I’m not in the tree so there is this regret over there so what they’ll do is they’ll place a buy limit order in herre dollars right hopefully if the price does retest it right this time around they managed to catch a piece of the move okay so that’s the kind of like the first group of traders who are who plays right buying pressure at $100 level on the other hand that could be also be a group of traders who are you know notice that you know Apple shares always retest hundred dollars couldn’t break out any sell shot eight hundred dollars then the price broke out and they are there in the raid they’re losing money first they are feeling the pain right now see I mean I shouldn’t her dollars the price now he’s hurting Sweeney dollars I mean the rate and you know if only I could get on a pretty even right I’ll be content that Oh a lot please please please or I let the price is gonna come back to my original entry price or I don’t have to take the loss so what would they do well if your shot and her analyst and you want to get off the trade and the same price you will place a buy limb in order at their level again right to get out of the existing shot trade so with this tool to group of traders one you know with the fear of missing out and the other group of traders who are you know one thing to get out of at breakeven this ends right by Lehman orders or or buying pressure right at this hundred dollars level and that’s why know when price breaks out of resistance it tends to become support again doesn’t happen always all the time right but more often no okay and finally the last thing that I want to share with you is that supported resistance they are areas on your chart I know I use the word lines a few times but really they are an area on your on your chart and the reason is simple let’s say we use an example of let’s say Coca Cola let’s say you know there’s a support of $70 at Coca Cola and when a price you know Richard Zeile at 71 $72 there will be traitors right who are eager to buy in right because you know price is really almost approaching support right let me buy right now in case you’re on the market doesn’t you know hit down low it makes a quick reversal right at least I am on bought the move right so they are what I call the traders who are you know I was a tamarind traders who are 2 inches over inches to buyer Saudi buyers just slightly in front of support right because they don’t want to miss the move on the other hand there’s another group of traders who are what I call the cheapskate traders they want to get the best possible price so for example if let’s his support is a $70 they work use Meghan maybe $69 and 90 cent to get the best best lowest absolute best price of support and EQ at $69 90 cents and here’s the thing right in the markets you have no idea which group of traders is dominant whether is that the ancient trader who can’t wait to enter a trade or is it a cheapskate trader who wants to get a best possible price and that’s why sapore is an area on your Chinese anywhere between 172 dollars to maybe $69 that is your area of support and this concept is the same as resistance so don’t treat them as lines on your chart okay they are not lines Mirada and area on your chart okay so with that said a quick recap number one the more time support resistance is tested within a short period of time the weaker it becomes number two the longer the price is away from a level the more significant the level becomes because there’s a lot of emotional baggage right at a price point level and number three when support is broken it becomes or it tends to become resistance and when the resistance is broken it tends to become support and number four finally support reasons the resupport a resistance they are an area on your chart so we then said right I have come towards the end of today’s episode I wish you good luck and good trading and I will talk to you soon you


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