Support and resistance levels play a very important role in trading, and are usually opportunities for traders to enter the market. So how to judge whether the support and resistance levels are effective is a very important issue.
The following three details will allow you to determine the support and resistance levels more accurately.
A well-known point is that when the trend is downward, what you need to look for is the resistance level, and when the trend is upward, what you need to look for is the support level. The biggest advantage of doing this is that you can follow the unfolding trend in the right position.
First of all, the first detail is that the price at obvious high and low points, as well as areas of concentrated transactions, are usually very important positions to pay attention to, and are also the usual entry points.
Prices usually have more obvious reactions near obvious highs and lows, as well as areas of concentrated trading. They usually receive resistance near resistance levels and support near support levels.
In addition, it is also necessary to explain that the support and resistance levels do not necessarily refer to a fixed point, it is often a certain price range.
Secondly, the second detail is whether there is a convergence position near the previous obvious high and low points and the points of concentrated transactions. When a convergence area appears, it is usually a more important position and a position that needs special attention. However, if this position is a point that follows the trend, it would be perfect.
In addition to the obvious highs and lows and areas of concentrated trading mentioned above, this convergence factor also has the following indicators to increase its effectiveness. If the moving average group is used as an indicator, then the area between the two moving averages can be used as a dynamic support and resistance area. When this area converges with the obvious highs and lows and areas of concentrated trading, it becomes a very important position.
In addition, the golden section line is often used as a standard for dividing support and resistance levels, and it can also be used to find a suitable convergence area. Usually the 50% retracement line and the 61.8% retracement line in the golden section line are the two most commonly used lines. When one of these two lines converges with the corresponding high and low points or the area of concentrated transactions, it is also a very good position.
The key point emphasized in the second detail is that the convergence of multiple indicators enhances the effectiveness of the support and resistance levels at this position. The more categories of convergence, the more effective it is, and more attention should be paid to it.
Finally, the third detail is the subtle performance of the candlestick or price pattern at this position (that is, the position where the previous two details converge). If the price shows the corresponding standard reversal candlestick, PinBar, engulfing pattern, or evening star, morning star and other patterns here, then it can be used as a confirmation signal, indicating that the price is clearly supported or resisted here.
At the same time, you can also narrow the time period to a smaller time period, such as a 4-hour period, to 15 minutes or 30 minutes. If the price shows an obvious price pattern in this confluence area, it can also be used as information to confirm whether the position of this area is valid.