(1) Drawing Trend Lines :
Lines drawn at an angle above or below the price are known as trend lines.
They hint at immediate trend and trace when a trend has changed.
They are also helpful as support and resistance by providing space to open and close positions.
Practice Session:
Find the trend lines. Show exercise
The trend line in an Uptrend: Drawn below the price
The trend line comprises the highs on a downtrend and the lows on an uptrend.
Practice Session:
Find the trend lines. Show exercise
A minimum of two swing highs or swing lows is required to draw a trend line.
The validity of a trend line relies on at least three highs or lows used.
The more times the price touches a trend line, the more it becomes valid as more traders use them as support or resistance.
Using the wicks or bodies of the candles
When drawing a trend line, most traders prefer wicks, and some prefer the bodies of the candlestick, which is acceptable.
The chart below is an illustration that depicts a trend line drawn using the bodies of the candles.
Nut Shell :
An overview of the lesson discussed so far:
Lines drawn at an angle above or below the price are known as trend lines.
They hint at the immediate trend and trace when a trend has changed.
They are also helpful as support and resistance by providing space to open and close positions.
Trend lines are drawn below the price in an uptrend.
Trend lines are drawn above the price in a downtrend.
A straight line must connect two lows in an uptrend.
A
straight line must connect two highs in a downtrend. At least three
highs or lows should connect the trend line to make it valid.
The more times the price touches the trend line, the more valid it is.
A trend line break, where the price breaks through the trend line, is another trading technique.
(2) How Do We Trade Using A Trend Line ?
Two techniques are prevalent.
Enter when the price finds support or resistance at the trend line.
Enter when the price breaks through the trend line
Trend line as support or resistance
When a trend line is noticed and if it’s holding as either support or resistance, enter into the market once the price returns to it.
1 Short entry after the price finds resistance at the trend line
Two stop loss above the trend line
The above chart illustrates the trend line used as resistance and the price used to find an entry.
A stop loss is put on the other side of the trend line.
The size of the stop loss is based on the strategy involved.
Trend line break
This technique utilizes the actual breakout of the line, which regulates an entry.
Entering With A Trend Line Break Involves Two Methods.
Aggressive entry
Conservative entry
Aggressive Entry :
Enter as soon as the candles break out and close on the other side of the trend line.
1 Short entry after the price broke through the trend line to the downside
Two-stop loss is placed above the trend line
The
illustration chart above depicts that the entry can be immediate as
soon as the candles close on the other side of the trend line.
Stop-loss is placed on the other side of the trend.
Conservative Entry :
Number 2: Wait for the price to return to the trend line and find resistance.
Number 3: Sell Entry Once determined that the breakout is true, enter into a short entry
Number 4: Stop loss is placed above the trend line.
The chart above illustrates a trend line that has been broken after acting as support.
The price was then tested from the other side as resistance, further confirming that the breakout is expected to continue.
Nut Shell :
An overview of the lesson discussed so far.
Lines drawn at an angle above or below the price are trend lines.
They hint at the immediate trend and trace when a trend has changed.
They are also helpful as support and resistance by providing space to open and close positions.
Trend lines are drawn below the price in an uptrend.
Trend lines are drawn above the price in a downtrend.
A straight line must connect two lows in an uptrend.
A straight line must connect two highs in a downtrend.
At least three highs or lows should connect the trend line to make it valid.
The more times the price touches the trend line, the more valid it is.
Another trading technique is a trend line break, where the price breaks through the trend line.
(3) How Do We Trade With Fibonacci Levels?
Before discussing this lesson, we need a prior understanding of support and resistance.
‘Fibonacci'
refers to a tool that measures the size of a price move and then places
support and resistance levels horizontally on a price chart.
The support and resistance levels are known as "Fibonacci levels."
These levels are used to make trading decisions in the usual way as normal horizontal support and resistance levels.
How To Set Up Fibonacci Retracement Levels In Meta Trader 4 (Or) Ami Broker Chart?
The beginning and the end of the price move in any direction can be identified.
The distance of that move can be measured by the Fibonacci tool
The Fibonacci tool will automatically place what is known as “Fibonacci retracement” and extension levels.
The
calculations of the Fibonacci levels are based on the numbers in the
Fibonacci sequence or the percentage difference between them.
Let’s discuss how to use this tool rather than consider its mathematics.
The Fibonacci tool is applied manually.
When Measuring A Downtrend:
Apply the tool at the beginning of the move to the end. It is applied from left to right.
The chart below depicts 38.2%, 50%, and 61.8%.
These are usually used even when other retracement levels have been found and work productively.
Number 1: The tool is drawn starting at the top
Number 2: The tool ends at the bottom, drawn from left to right
Number 1: 38.2% level
Number 2: 50.0% level
Number 3: 61.8% level
How Do We Select The Extension Level At Which To Take Profit?
To increase profitability, the extension levels can be matched to the corresponding retracement levels.
For instance, if the price retraced to the 38.2% retracement level, then the related extension level would be 138.2.
The Chart Below Is An Illustration Of Extension Levels In A Downtrend.
Strategy :1
Number A: 138.2% extension level
Number B: 161.8% extension level
Enter a position at one of the retracement levels when the price pulls back and then exit at one of the extension levels.
Strategy: 2
Number 1: at 38.2% retracement level
Number 2: Corresponding extension level at 138.2%
The related extension to the 50.0 or 61.8 retracement level is 161.8.
Strategy :3
Number 3: Short entry at 50.0% retracement level
Number 4: Corresponding extension level at 161.8%
Uptrend Move:
The tool is applied from the bottom and ends at the top.
It is always applied from left to right.
The following chart depicts the same
Number 1: The tool is drawn starting at the bottom
Number 2: The tool ends at the top, drawn from left to right
Fibonacci levels are automatically placed in MT4 or AmiBroker Chart.
The chart above illustrates once the Fibonacci tool has been applied,
it automatically places the Fibonacci levels between the start and the
end of the move.
These levels are known as retracement levels.
The level that has been placed halfway between the start and the end of the move is the 50% retracement level.
When the price retraces halfway back, it is said to have retraced to the 50% level.
Based on the trend direction, it acts as support or resistance.
The most widely used levels that the price could retrace are 38.2%, 50%, and 61.8%.
The retracement levels indicate how far the pullback could be.
Fibonacci Retracement Levels Can Be Used For Entries
The
chart below illustrates the Fibonacci tool being applied to an uptrend,
and the 38.2%, 50%, and 61.8% levels were placed between the start and
the end of the move.
We can use these levels for potential entries as the price could retrace back.
1. Potential long entry at 61.8%
2. Potential long entry at 50.0%
3. Potential long entry at 38.2%
Why Do Fibonacci Retracement And Extension Levels Correspond With Each Other?
Targeting a Fibonacci extension level is one of the techniques adopted by banks & financial institutions to take profit.
They will be anticipating other banks and traders to do the same.
There is no rigid rule, and there must be a confirmed trend even though extension levels work as self-fulfilling prophecies.
Using each level as a target
Exit when the price seems to find necessary support or resistance there.
It is considered a good exit if the price seems to have trouble breaking through a Fibonacci level.
Nut Shell:
An overview of the lesson discussed so far.
‘Fibonacci' refers to a tool that measures the size of a price move
and then places support and resistance levels horizontally on a price
chart.
The support and resistance levels are known as "Fibonacci levels."
These levels are used to make trading decisions in the usual way as normal horizontal support and resistance levels.
The Fibonacci tool is continuously applied from the left-hand side over to the right-hand side of the price chart,
for both long trades in an uptrend and short works in a downtrend.
The
levels placed between the start and the end of the initial move are
retracement levels, showing where the price could return.
The most common Fibonacci retracement levels are 38.2 %, 50%, and 61.8% and are commonly used for entries into the market.
Two methods can be adapted to select which retracement levels we can use to enter the market.
Aggressively enter as the price reaches each level.
Wait until the price finds support or resistance at these levels first, and then enter.
The most common extension levels are the 138.2% and 161.8% levels and are commonly used for exits out of the market.
Retracement
levels and extension levels can correspond, with a retracement to the
38.2% usually on to the 138.2% and a retracement to the 50% and 61.8%
usually on to the 161.8% level.
(4) Resistance Analysis :
Resistance:
Before discussing this lesson, we need a prior understanding of the Japanese candlestick pattern.
What Is Resistance Level?
The significant prices at which buyers have already entered the
market in adequate quantity, and they pause to reverse the price
movement.
The traders use these price levels to analyze the likely entry of buyers again into the market.
How Can We Analyze?
This can be analyzed on price charts with horizontal lines where there is a pause in price at the same level again and again.
Resistance
When the price moves higher, it will undoubtedly hit the ceiling. This is the point at which the price pauses and reverses.
The chart below is an illustration.
The sellers enter the market and overpower the buyers. The price has stopped going further high.
When the price moves higher and hits the ceiling again and again at the same level. A point at which the price pauses and reverses are known as resistance.
This helps analyze a resistance level where the price is likely to pause under selling pressure.
If the price returns to a previously established resistance level, sellers may enter the market. This causes the price to pause and reverse.
Resistance levels enable to enter into new short positions or as a profit target level to close an existing long position.
How Do We Identify Resistance Levels?
We need to observe where the price repeatedly pauses in the same place. The buyers enter the market in this place.
The
illustration below shows that placing a horizontal line where the price
seems to pause assists us in finding a resistance level where sellers
are entering the market and stopping the price.
Practice Session:
Exercise: Find the correctly drawn resistance levels. Show exercise
The chart above illustrates using the bodies of the candles for the resistance line.
There is no definite method for placing support and resistance. A suitable plan and strategy have to be adopted by the trader.
Support and resistance zones
Support and resistance levels cannot be settled correctly with a single line. It is better to establish a zone.
The illustration above depicts that the price confronts resistance many times at different levels.
Applications With Support And Resistance:
As these levels are subjective, traders' points of view may differ regarding these levels.
Although
we come across several support and resistance levels expecting the
price to reverse, choosing the right ones is based on experience.
Number 1: Price finds resistance
Number 2: Price broke through the resistance level but did not stay above.
How To Avoid False Breakouts?
Long trade: Once the price has broken through a resistance level,
wait until the previously established resistance level is shown to hold
as support.
Short trade: Once the support level has broken, wait until the support has held as resistance.
Nut Shell:
An overview of the lesson discussed so far
At the support level, there are adequate buyers to stop the price from falling further and reverse the cost to the upside.
At the resistance level, there are adequate sellers to stop the price from rising further and reverse the cost to the downside.
Place horizontal lines on a chart where the price seems to stop repeatedly to find the support and resistance levels.
When our approach is stable, we can use the wicks or the bodies of the candlesticks to draw support and resistance.
Support can become resistance, and resistance can become support.
We need to be careful to avoid false breakouts.
The price may pretend to break through support or resistance but will reverse in the opposite direction.
(5) Resistance Become Support
Practice Session:
Exercise 1: Find the support and resistance zones. Show exercise
Exercise 2: Find the support and resistance zones. Show exercise
Exercise 3: Find the support and resistance zones. Show exercise
Resistance May Become Support
The price breaks through a support or resistance level when one side has defeated the other.
When
the price breaks through support or resistance, it is not uncommon for
the price to come back to the breakout level before it continues.
Support can become resistance, or resistance can become support in these instances.
The
illustration below shows that the price broke through a resistance
level. This depicts that at this price, the buyers defeated the
sellers.
Number 1: Price finds resistance
Number 2: Price breaks through resistance
Number 3: Price comes back to the previous resistance level that has now become support
Closing a position:
Long position: Sell the asset back to the market.
Short position: Buy the asset
As the price rises, the sellers at the resistance level will take a loss.
The price returns to the previously established resistance level.
A buying pressure is created in the market by the traders that went short and would close their losing positions.
The traders who have not entered the market so far will also join.
They will enter new long positions at this price level, hoping for a price increase.
The extra buying pressure will keep the price rising.
The previously established resistance turns into a support level.
Nut Shell:
An overview of the lesson discussed so far
At the resistance level, there are adequate sellers to stop the price from rising further and reverse the cost to the downside.
Place horizontal lines on a chart where the price seems to stop repeatedly to find the support and resistance levels.
When our approach is stable, we can use the wicks or the bodies of the candlesticks to draw support and resistance.
Support can become resistance, and resistance can become support.
We need to be careful to avoid false breakouts.
The price may pretend to break through support or resistance but will reverse in the opposite direction.
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