Technical Analysis - Using Support & Resistance Correctly

If you are trading with technical analysis one of the keys to making longer term profits is being able to use support and resistance to make profits.

Most novice traders however fail to trade with support and resistance correctly so here are some tips.

1. Support and resistance does not work in short time periods

Most novice traders try using support and resistance in daily periods – Forget it, you will lose.

Why?

Because these levels are totally meaningless.

Trillions of dollars a day are traded by millions of participants and to say that support and resistance is valid in such short time frames as a day or a few hours is laughable.

The only people who take notice of these levels are the small losing minority of day traders.

Don’t believe me?

Ask any day trader for a real time track record of profits using support and resistance and you won’t get one.

Volatility is random in short time frames and therefore any technical indicator you try to use wont work.

Novices try day trading and lose and wonder why, they need to get educated study volatility and standard deviation.

2. Support and Resistance Test and Time Span

Generally you want several tests (the more the better) and gaps between the tests.

The more tests you have the better, this means that traders will generally pay attention to them and when they hold are or broken.

However, when looking for support on resistance don’t just use the daily chart – Look at the weekly chart which will give you the bigger picture.

3. A Great Trade set up

Is when you get critical support and resistance on the longer weekly chart lining up with similar levels on the daily chart – These levels are very significant and you should look to trade them.

4. The Biggest mistake made by novice traders

The biggest mistake made by novice traders is they simply see support and resistance levels and trade into them and “hope” the market reacts in the way they want.

You will never make money this way -you must have price momentum in your favor.

Price momentum must support the way you are going to trade and we will look at this in more detail in part 2 of this article.