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Support and Resistances

Support and Resistance

A Price Action Support and Resistance Line is one of the most used methodology in technical analysis that allows a trader to identify high probable trade locations. A support line more often signifies demand/ buyer interest. Price usually bounces from these levels and or violates them with impulse breaks. A Resistance line is the opposite, it more often signifies supply/ seller interest. Price usually rejects from the level or violates it with an impulse break.

Key Characteristics of Support and Resistance lines: Support Lines indicate buyer demand/ buyer interest Resistance Lines indicate supply/ seller interest Support and Resistance Lines represent the psychology of the market were participants buy or sell depending on the reaction.

Support/ Resistance Flip Retest

A Support/ Resistance (S/R) Flip Retest is an in the moment occurrence when support flips into resistance and or resistance flips into support. This allows for a direction bias, especially when the support and or resistance is of major significance. When Price Action tests previous resistance as support, it allows for a potential long entry. Vice versa is true for when support is tested as resistance – allowing for a short entry.

Key Characteristics of Support/Resistance (S/R Flip) Retests: When Support turns into Resistance, this is known as a ‘Bearish S/R Flip Retest’ When Resistance turns into Support, this is known as a ‘Bullish S/R Flip Retest’ S/R Flip Retest are more commonly used on Horizontal Support and Resistance Lines.

Price Action Range

A Price Action Range is where price has a defined boundary between range high resistance and range low support. For a valid range price needs to test both levels (support and resistance) at least twice. When price is ranging, it is simply in a sideways movement until it is broken – the common saying – ‘trade the range till it breaks’. Another important aspect of a range is that price action is not making any new highs or lows until a valid bullish or bearish volatility expansion.

Key Characteristics of Price Action Range Clear boundaries with the Range High being the Resistance and the Range Low being the Support Price Action needs to test Range Low and Range High at least twice for is to be valid. There are no news Highs or Lows set in the market until a break of the range occurs.

EMA/MA Resistance

EMA/MA Resistance (Consecutive Lower Highs) is a trending environment where the EMA and the MA, in this case both being the 200, acts as a dynamic resistance. Price Action rallies are clearly sold into as each test is simply a lower high. Also being dynamic in nature, a break of this trend will only come to fruition with the EMA and MA cross. EMA/MA Resistance are great in determining the strength and aggressiveness of the downtrend.

Key Characteristics of the EMA/MA Resistance Each rally is significantly sold into, causing a lower high The trend is Dynamic in nature as the EMA/MA moves with Price The EMA/MA allows for identifying the strength of the downtrend.

EMA/MA Support

EMA/MA Support (Consecutive Higher Lows) is a trending environment where the EMA and the MA acts as a dynamic support. Price Action deviations are bought up, establishing consecutive Higher Lows. This is very similar to the EMA/MA Resistance in nature but represents to opposite direction. Also again being dynamic in nature, a break of this trend will only come to fruition with the EMA and MA cross. EMA/MA Supports are also great in determining the strength of the trend.

Key Characteristics of the EMA/MA Resistance Each deviation is bought up, establishing a Higher Low The trend is Dynamic in nature as the EMA/MA moves with Price, like the EMA/MA Resistance The EMA/MA allows for identifying the strength of up-trend.

What is the EMA and SMA?
The Exponential Moving Average (EMA) and the Simple Moving Average (SMA) are Moving Averages that reveal the average price of an asset over a specific period. The difference between the EMA and the SMA is from its respective calculations. The EMA is calculated with recent price data making it more sensitive whilst the SMA is calculated over a series of price data – making it smoother.