One of the most important indicators that all traders shouldn’t overlook is support and resistance levels. The concept is rather simple, but it can help out tons. In fact, if you rely mainly on technical analysis to trade profitably, there’s a large chance that you already trade using support and resistance right now.
Simply put, support and resistance levels answer a very important question when trading: at what points do prices fluctuate, and how long does it take them to do so?
By knowing the answer to this question, then you’ll be better guided when it comes to determining the best trade entry points for your specific asset. In addition to this, support and resistance levels also allow you to speculate when a trend is most likely to reverse.
In addition to this, you can trade using support and resistance while also using other indicators on your chart. This ups your chances of completing winning trades on Binomo.
The good news is, support and resistance levels are not at all hard to understand, even for complete beginners. In this guide, I’ll show you everything you need to know to trade using support and resistance levels!
Overview of Support and Resistance Levels
Support lines refer to the marks drawn to determine the lowest prices that a certain asset reaches within a specific period. A valid support line must touch at least two lows. Let’s say that within a 1-hour period, Asset A managed to touch the price of $10, the lowest it ever reached within this time period, before going up several times. That means the support line will be at the $10 mark.
On the other hand, resistance lines are marks drawn to determine the highest prices that a certain asset reaches within a specific period. Just like the support line, a valid resistance line must also touch at least two highs. To continue the scenario above, let’s say that the price of Asset A also managed to touch the highest price, $25, a total of three times during this 1-hour period. That would put the resistance line at the $25 mark.
Do take note that it doesn’t always have to be exact same price points. For instance, the lowest price could be $9 once, but if there were four $10-$11 prices in the specific time period of your choosing, that means the support line would still be somewhere at the $10 mark. The $9 price would simply be a false breakout.
Also, support and resistance lines aren’t always horizontal. There are some instances, such as in an uptrend, when the resistance line connects to the higher lows of the trend.
How to set up support and resistance on Binomo
Setting up support and resistance lines on Binomo is very easy. You can simply use the line tool provided in the Indicators and Tools tab to draw your own support and resistance lines.
To draw a support line, simply select a horizontal line and choose a specific low point on your chart. Click that point to create a line. Then, click another point, a similar low, in order to finalize your support line.
The same goes for the resistance line, although in that case, you’d have to select two highs instead of lows.
Things to remember when using support and resistance
Although only 2 points are necessary for a line to be considered a valid support line or a valid resistance line, there are plenty of instances where the line touches more than 2 points. In this case, it would be referred to as a ‘strong’ support or resistance level.
Strong support or resistance levels are very sturdy against breakouts. This means that in a trend where the support or resistance is particularly strong, it might take a while before prices could break out. If you’re going to do price action trading, now’s the best time to do it, because it tends to be very reliable.
On the other hand, weak support and resistance levels make it easy for prices to break out. It’s not recommended to do price action trading during this point because it will be quite hard to predict the market.
If the prices break out of a support or resistance line, a new level will be created. So, if prices break out of the resistance level in an uptrend, it might become the new support level in the next time period. This also happens the other way around.
Trade using Support and Resistance on Binomo
As you can see in the chart above, the support and resistance levels are quite strong, symbolized by the encircled points. This is a good example that shows prices won’t break out of these levels easily.
A good strategy, if you want to trade using support and resistance levels, is to enter a corresponding long position based on the price. For instance, if the price touches the support line, enter a long buy position. If the price touches the resistance line, enter a long sell position.
See, using support and resistance levels isn’t that difficult! Be sure to use them often since learning how to use them properly is actually one of the most essential skills you need to have as a trader.
Think you’re ready to start trading using support and resistance on Binomo? Sign up now for a free practice account to start your trading career. Feel free to let us know in the comments below if you’ve got any questions!
Good luck on your trading journey with Binomo!