🟢Support🟢 & 🔴Resistance🔴 in TradingView Land !!!👨🏫Hello, guys🤪; I'm Pejman, and today we will change the regular TradingView to TradingView Disneyland🎡 . I want to tell the story of Snow White and the trader dwarfs.
Once upon a time🌞, in the kingdom👑 of Stocktopia, there was a young princess👰♂️ named Snow White Charts. She was the heir to the realm of Stocktopia. Still, unlike her father, the King of Stocktopia, a successful businessman🧔, Princess needed help understanding the stock market. She often lost money💸.
One day, while walking in the forest🌿🌲, Princess Snow White Charts stumbled upon an old house called Dwarf traders. She became curious and decided to visit this house🏠.
Dwarves lived in this house🏠 whose job was to help the traders. They directed the price of different stocks by creating support and resistance lines or zones, and each dwarf was responsible for one of them.
The Princess did not know anything about these lines. So she decided to stay to learn about these powerful lines.
One of these dwarves, named Doc, looked older and wiser than the other dwarves. The Princess enlisted the help of Doc to learn how these lines worked.
Doc was proficient in various methods of technical analysis and had an exceptional talent for simplifying complex issues😝. So he tried to teach these lines to the Princess👰♂️ in the simplest and best way possible.
If you also want to master technical analysis like Doc before learning support and resistance lines/zones, read the following post to learn what technical analysis is. 🤓👇
Doc showed the following picture to the Princess.
Can you tell what the role of support lines is before reading Doc's explanation❓👇
As you can see in the picture, the candles are placed in a downward trend, and they go down🔴 like playful children🧒🧒 playing on the slide.
Doc explained that support lines are like a bouncy castle🕍 for price. When the candles reach these Lines, they'll push them up just like a trampoline; the price will grow.
Remember that they prevent the price from moving too far down or falling.😅 The candles are safe on the support lines, so Sleepy sleeps peacefully.
Doc believes that when a stock's price hits support lines, it can indicate a potential buying opportunity. Still, when it breaks down🔴 the support line, it can show a possible selling opportunity; but I will discuss this in the following.
Now you may ask, what are resistance lines❓ The exact same question came up for Princess Snow White Charts😁.
First, look at the chart below.👇
Resistance lines are like the roof of a bouncy castle. In an uptrend🟢, when the candles are happy and constantly jumping higher and higher, the resistance lines prevent them from going further.
The resistance line is guarded by Goupy, who pushes the candles down🔴 like a bully, whenever the candles hit the resistance line.
Let's suppose all these price lines & dwarfs want to lead candles in a particular direction.
Now that you are familiar with support and resistance lines, you might have the same question as Princess👰♂️had again. How to recognize and find these lines❓
According to Doc, there are several ways to find these lines:
Past Price Data:
Sir John says: "Price data is like a roadmap, showing you where the market has been and where it might be heading."
Looking at past price data is like checking the tracks of a criminal. It may be seen, but it is simply not correct. You can know how he behaved in the past because he may repeat the same behavior in the future.
So, to better understand the price, you must also know its past. Even Philip Fisher also believes that: "Price data is the lens through which we can see the market's true nature."
Previous Lines:
By finding previous support and resistance lines, it's as if you've found a criminal's 🔫 recorded files.
Price data is the story of the market, and those who ignore it are doomed to repeat their mistakes. You can't predict the future without understanding the past, and the market's past performance is the best indicator of its future performance.
Wow, speak of the devil🤐, I forgot that indicators also have important points to say too.
Indicators:
Maybe price data is like a roadmap🚨 or past lines like a criminal recorded file. But indicators are like GPS.
Indicators are the GPS of the financial markets, and they guide us to our destination and help us avoid getting lost.
Indicators are the financial markets' fingerprints, revealing the underlying patterns and trends.
Doc and I found some indicators helpful in identifying supply(resistance) and demand(support) zones, such as:
Moving Average/Parabolic SAR/Bollinger Bands/Ichimoku Kinko Hyo/Fibonacci/Pivot point
There are many ways to recognize these lines and even indicators that help you find them like an assistant, but you should still try to know and learn them yourself.
For example, Doc says there are additional support and resistance lines. Like the slides in the game, they can be straight or sloping, going up🟢 or down🔴. I'm kidding, but they really have these types 🙂.
In the previous pictures, I showed you only static lines. Now, look at the pictures below because I will show you all the types of these lines with examples.
For example, if the support and resistance lines are like a road🛣 on the ground, they are called static support and resistance lines .
Now, what if this road turns into steep ropes❓ Well, it is known that they are called dynamic support and resistance lines .
For example, if you want to go mountain🗻 climbing, it is as if you are climbing with dynamic support. In general, in an upward🟢 trend, dynamic support lines like a ramp🚧 prevent the price from falling.
Now that we are talking about climbing let's introduce another game🎲. The zipline🤐😄.
The price decreases from the dynamic resistance lines like a zipline in downward🔴 trends. 😄
I must say that theoretically, the price will go down after hitting the dynamic resistance lines and these lines prevent price growth🟢.
Dynamic resistance or support is also called a trend line. Trendlines are helpful in many parts of technical analysis, such as classical patterns.
Just take a look at the below post. You will find that trend lines help us effectively identify these patterns or trade with them. That's how I am! COOL!😎😎.👇
Don't worry and don't rush because, as said: Patience is bitter, but its fruit is sweet.
Soon I will teach all these patterns in future posts, but we have to go step by step together.😎😎😎
But I must add that the price is also very playful😛. The price may cross these lines, be above the resistance or below the support, and escape from them.
"If price can make a credible breakout, this could be a good place to trade and make some sweet dollars," Doc whispered to Princess Snow White Charts.
What is a valid breakout❗️❓
This was the question that arose in the Princess's 👰 mind, and I think it is your question as well.
Imagine that the resistance line is like a prison that confines the candles. A diligent & playful candle needs the support of buyers to escape from this prison. If the buyers support it, it can get out of this prison.
After escaping the breakout candle, if another candle, called the confirmation, escapes from this prison and jumps above the breakout candle, the way will be clear for other prisoners, and they can run. So a valid breakout will happen.
A valid breakout is created with a strong candle called a breakout candle(such as the Marubozu candle); after that, a candle as a confirmation candle will confirm this breakout.
Don't worry about selling below the Support line or buying above the resistance line. If a valid breakout has occurred, the target stock will decrease/rise further, and the trend will not stop or end anytime soon.
Let's walk through an example of a valid breakout with Doc.
As you can see, the price broke this line with a strong candle and made a confirmation candle. As a result, we consider this a valid breakout.
If you have noticed, finally, the price went back to this line to greet the previous line. This movement is called Pullback .
In general, to say that a breakout is valid, there are several conditions:
Preferably, the breakout candle and the confirmation candle are the same color.
The point where the breakout candle closes must be above resistance or below support.
The breakout must have happened with the body of a candle, not with the candle's shadow.
Even the closing point of the confirmation candle should be above the resistance breakout candle or below the support breakout candle.
But I should mention that the trading volume increases when a valid breakout occurs.
Now that you know a valid breakout, we can also check an invalid breakout, so dive down🔴 to the chart below.
As you can see, the price tries to be playful😜😜 and break the support line. But there are no buyers to support the price for this movement, so this breakout will be temporary and short-lived.
The price will soon return below the Support line. The invalid breakouts are sometimes known as bull traps or bear traps which I will explain in future posts.
I advise you to only sometimes look for a straight line for support or resistance.
I use support and resistance lines in my analysis to draw trend lines. But when I want to determine the support and resistance of a currency, I draw them as support and resistance zones.
Using zones makes you no longer involved in each line's small & fake breaks, and you won't make mistakes with each break.
Now that you have learned almost everything about these lines😎😎, it's time to start fishing and apply these tips to real trades.
I have considered all the necessary items for trading with these lines in the chart below. You might understand the reason for trading by looking at the picture before reading the description.
( The First Method )
The picture shows the price below this resistance zone, and they tried to escape several times.
Still, finally, when the trading volume and the number of buyers increased, it could cross its resistance zone with a strong candle(breakout candle), and then the confirmation candle formed.
Now, as traders, we should place our Entry Point(EP) slightly higher than the confirmation candle. And also, be careful;😱 maybe this break is invalid, or it returns below its resistance. So we place our Stop Loss(SL) a little lower than the breakout candle.
Now, look at this chart again. But I am going to teach you another method for trading.
( The Second Method )
You should only sometimes enter into a position at one point.
For example, when the price returns to its resistance to greet(Pullback), it's a good time to divide your money into two parts & re-enter the position.
With this, your average Entry Point will be lower, and the Risk/Reward(RR) ratio will increase.
( I know that the Risk/Reward(RR) is something that some of you are unfamiliar with, so don't worry cause I'm going to talk about it in future posts.)
There is another way to trade with these lines.
(The Third Method)
You've got another way to trade with two Entry Points. You can enter the position when the pullback accrues; the other entry point is a little higher than the highest price before the pullback.
In this method, you will be more confident about the position, but at the same time, the Risk/Reward (RR) is decreased compared to the previously mentioned methods. The Stop Loss is the same as the others.
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Prince Snow White Charts learned all these tricks along with Doc and the other Dwarves.
Excited to try this new knowledge, he immediately returned to Stocktopia😊and applied what he had learned to his trading. To his surprise, his trades became more profitable.
The king was pleased with his daughter's improvement, & these lessons were taught to all the traders in the kingdom👑 of Stocktopia.
From that day, Stocktopia was known as the kingdom with the most successful traders, thanks to the wisdom of Doc and Princess Snow White Charts.😊😊
Stocktopia's traders lived happily ever after, thanks to the protection and guidance provided by the Seven Dwarfs of Support.😇😇
I hope you enjoyed this story and use support and resistance lines/zones in your trading. But never forget that before using any new method, try it several times to master that method.😎😎😎.
Now let's leave the world of stories and return to the real world of traders. Take advantage of the following posts.
In the end, I wish you health and success.
