Delgado - Forex: Technical Analysis; the Support and Resistance.

TASUPPORT&RESISTANCE

IntroductiontoTechnicalAnalysis

www.ThinkForex.com 2 [email protected]

ContentRiskWarning.....................................................................................................................................................................3SUPPORT&RESISTANCEEXPLAINED:...............................................................................................................................4

Support&ResistanceInterchange............................................................................................................................5MEDTHODSTOIDENTIFYS/R:...........................................................................................................................................6HorizontalS/R...............................................................................................................................................................6Zones............................................................................................................................................................................7LongWicks/Tails.........................................................................................................................................................8Channels/Trendlines...................................................................................................................................................9PivotPoints.................................................................................................................................................................10Fibonacci.....................................................................................................................................................................11MovingAverages(MA)...............................................................................................................................................12UsingConfluencesofS/R............................................................................................................................................13Confluences:Trendline&HorizontalS/R...................................................................................................................13Confluences:Fibonacci;HorizontalS/R;MovingAverages........................................................................................14Confluences:TrendlineResistance;200eMA;PotentialChartPattern......................................................................15Confluences:Fibonacci;PivotalS/R;RejectionSpikes...............................................................................................16SUMMARY:......................................................................................................................................................................17REDUCEYOURLEARNINGCURVE:..................................................................................................................................18

TASUPPORT&RESISTANCE



RiskWarningTradingintheForeignExchangeandCFDsmarketinvolvesasignificantandsubstantialriskoflossandmaynotbesuitableforeveryone.Youshouldcarefullyconsiderwhethertradingissuitableforyouinlightofyourage,income,personalcircumstances,tradingknowledge,andfinancialresources.OnlytruediscretionaryincomeshouldbeusedfortradingintheForeignExchangeandCFDsmarket.Anyopinion,marketanalysisorotherinformationofanykindcontainedissubjecttochangeatanytime.NothinginthispresentationshouldbeconstruedasasolicitationtotradeintheForeignExchangeorCFDsmarket.IfyouareconsideringtradingintheForeignExchangeorCFDsmarket,beforeyoutrade,makesureyouunderstandhowthespotmarketoperates,howThinkForexiscompensated,understandtheThinkForextradingcontract,rulesandbethoroughlyfamiliarwiththeoperationofandthelimitationsoftheplatformonwhichyouaregoingtotrade.AFinancialServicesGuide(FSG)andProductDisclosureStatements(PDS)fortheseproductsisavailablefromTFGLOBALMARKETS(AUST)PTYLTDbyemailingcompliance@thinkforex.com.au.TheFSGandPDSshouldbeconsideredbeforedecidingtoenterintoanyDerivativetransactionswithTFGLOBALMARKETS(AUST)PTYLTD.Theinformationonthepresentationisnotdirectedatresidentsinanycountryorjurisdictionwheresuchdistributionorusewouldbecontrarytolocallaworregulation.2012TFGLOBALMARKETS(AUST)PTYLTD.Allrightsreserved.AFSL424700.ABN69158361561.Pleasenote:WedonotserviceUSentitiesorresidents.IntroductiontoTechnicalAnalysisByMattSimpsonCopyright@2013TFGLOBALMARKETS(AUST)PTYLTDAllRightsReserved

SUPPORT&RESISTANCE



ThankyoufordownloadingthisTradingGuide.Thisisthesecondofa4partseriestointroduceyoutoTechnicalAnalysis.Eachparthasavideoandaccompanyingtradingguidewhichyoucanviewbelow.

Part1:TrendsPart2:Support&ResistancePart3:ChartPatternsPart4:TATechniquesCombinedPart5: TradingTechnically(BonusVideo)

SUPPORT&RESISTANCEEXPLAINED:Atanyonetimeatraderhasonly3options Buy(buylong) Sell(sellshort) StandasideLetustakeascenarioofthebullspushingpricesuptoalevelthathaspreviouslybeenaresistancelevel. Bullssuccessfullyoverpowerbeartopushupprices Pricereachesalevelthat,forwhateverreason,sawpricepreviouslyreverse Asweapproachthislevelsomebullsdecidetocloethiertradesandbookaprofit Atthesametimesomebearsseepriceapproachingthelevelanditlosesmomentum,sodecidetosellshort Pricenowslowsfurther,andevenhaltsneartheresistancelevel Someotherbearscomealonganddecidetojointheparty,soalsosellshort PricebeginstodeclineawayfromtheresistancelevelTheresistancelevelhasbeenrespected

FurtherInTime: Priceacceleratestowardstheresistancelevel Somebears,whopreviouslyprofitedfromgoingshortatthislevel,sellshortagain Howeverinthisinstancetherearemorebullsthanbears,sopricebreaksthoughtheresistance Oncepasttheresistancelevelpricetriggersthebearsstops,forcigpriceevenhigherstill Somebullstakeprofitwhilstsomebearsalsodecidetogoshortpriceretracestowardspriorresistance Feelingmoreconfidentthebullsbuymoreatthepreviousresistancelevelandpriceslows,thengoesup OurpreviousresistancelevelhasnowbecomeasupportlevelNowweunderstandwhatcausesSupportandresistance(S/R)wecannowformthefollowingassumptions- Supportbecomesresistanceandresistancebecomessupport- ThelongeranS/Rlevelholdsthemoresignificantitbecomes- ThemoretimeanS/Rlevelholdsthemorereliableitisdeemedtobe- WhenasignificantS/Rlevelbreaksthemoresignificantasubsequentmovecanbeexpected

SUPPORT&RESISTANCE



Support&ResistanceInterchangeSupportandResistanceinterchange:Oncealevelofresistancehasbeenbrokentotheupsideyouwilloftenseethissamelevelretested.Ifthisholdsthepreviousresistanceisthenconsideredtobealevelofsupport.Thereverseisalsotruewhenalevelofsupportbreaksitoftenbecomesalevelofresistance.ThelongeranS/RlevelholdsthemoresignificantitbecomesLevelsofS/Rcanlastanythingbetweenacoupleofminutes,toyearsordecades.ThereasonforthebreakdoesnotusuallyconcerntheTechnicalAnalystbecauseweassumesomethingspecialhaschangedwithinthemarketconditionsforthisleveltobreak.

SUPPORT&RESISTANCE



MEDTHODSTOIDENTIFYS/R:WhilsttherearemanyinventivewaysoffindingS/RlevelsIamgoingtocoversomeofthesimplestandmostfrequentlyused.ThesearethemethodsIusemyselfandareapplicabletoeverytimeframeormarket,andaccessibletoanyonewithchartingsoftware.TheideaistocombineseveralformsofS/Rtogainmoreconfidenceinaparticularlevelholdinginfuture.Themoreoftheselevelsyoucanidentifywithinarelativelycloserangetoeachother,thebetter.

Price- HorizontalS/R- Zones- Trendlines/

Channels

Indicators- PivotPoints- Fibonacci- Moving

Averages

HorizontalS/R

Thisisbyfarthemostsimpleofmethods,andtheoneIusemostoften.IfyouhadtolearnonlyoneformofanalysisthenIwouldrecommendHorizontalS/R.Allwearelookingforareaareasonthechartwhichhavebeentestedmanytimes(themoretimesthemorereliable)andideallyhavebeentestedasbothsupportandresistance.Iftheyhavebeentestedasbothsupportandresistance,thenyouwillhearmerefertotheselevelsaspivotalS/Rlevels.

UsetheCrosshairtoidentifyhorizontalS/R:PressControl+Dtoenablethecrosshaironyourchart,thenmoveyourmouseupanddownthechart(withoutclicking)tofindareasthathavebeentestedandrespectedonthechart.Theselevelsneedntbeperfect(althoughsometimestheyare)soitisOKiftheCandleTails/Wickestestthelevelsonceinawhile.AlwaysstartonhighertimeframestoidentifymajorlevelsorS/Rbeforemovingtolowertimeframestorepeattheprocess.

SUPPORT&RESISTANCE



Zones

ZonesaresimilartoHorizontal(orPivotal)S/Rlevelsexcepttheyallowformuchmorebreathingroom.Sothesearenotlevelswhereyouexpectanexactpricetogethitandreverse,butareaswhereyouexpectsomesortofpriceorhesitation,ifnothingelse.IregularlyusethreemethodstoidentifyZonesareasfollows:

- CongestionAreas- Swingpoints- LongTails/Wickes

TheseCongestionsAreasworkonalltimeframesanditissimplyacaseoflookingleftandnotingtheseareasaspotentialS/Rareasbeforepricereachesthere.

CongestionsAreasIfyoulookattheSilverWeeklychartyoucanseehowtherewassomeverymessy/sidewayspriceactionaroundMarch2010whichIhavehighlightedinGreen.Pricethenralliedallthewayupto50.Some3yearslaterpricecameallthewaybackintothegreenboxandheldassupport.Idrewtheboxlongbeforepriceevergotthere.Thisisnotanexactscienceandcertainlynosignaltobuysilver,butithelpedusanticipateanareaofsupportlongbeforeitgotthere.

SwingPoints- Swingpointsmustbeoneof,ifnotthemostclosely

watchedpointsonachart.- AnyonewhousesDowTheory,ElliottWavesand

TrendsAnalysis(HigherHighs,LowerLowsetc.)watchtheswingpointsonachartaspartoftheiranalysis.

- Theyneednotbeprecisebutyouusually(attheveryleast)getapricereactionwhenwerevisitapreviousswingpoint

SUPPORT&RESISTANCE



LongWicks/Tails

Thisisbyfarthemostsimpleofmethods,andtheoneIusemostoften.IfyouhadtolearnonlyoneformofanalysisthenIwouldrecommendHorizontalS/R.Allwearelookingforareaareasonthechartwhichhavebeentestedmanytimes(themoretimesthemorereliable)andideallyhavebeentestedasbothsupportandresistance.Iftheyhavebeentestedasbothsupportandresistance,thenyouwillhearmerefertotheselevelsaspivotalS/Rlevels.

Longtails/Wickes:- Alsoreferredtoasspikes,longwickshighlightareasthathavebeenaggressivelyattackedyetsuccessfully

defended,makingitanimportantpricelevelforfuturereference.- Usingaspikeinisolationisnotalwaysenough.- IfweseemultipleareaswherethesespikesappearIwilldrawaboxconnectingtheseareastodrawmyzone.- ThistechniqueisparticularlyusefulonFX(especiallyCrossesandExotics)asthesemultiplespikesareacommon

characteristicofthesemarkets.

SUPPORT&RESISTANCE



Channels/TrendlinesTrendlinesareinessenceS/Rlevelsandchannelissimply2paralleltrendlines.IfindtherealpowerofusingthesemethodsarewhenyouidentifyalevelwhichcoincideswithanotherformofS/R(suchashorizontalorpivotalS/R).IntheexampleonGBPUSDweeklywecanseethelowerChannel(ortrendline)coincidedwitha61.8%Fibonacciretracement).WhenpricehitsthislevelitdidntlookbackWewillcoversuchconfluenceslateringreaterdetail.

Youcanalsoseechannelswithinchannels,howevertheysufferfromthesamedrawbackastrendlinesquiteoftenbythetimeyouhaveidentifiedthemmostofthemoveisover.Ausefulfeatureofchannelswithinchannelsistheycanprovideroughprofitobjectiveswhentheyoverlap.HerewecanseeGoldandpricereversedwhenitreachedtheupperbandofeachchannel.Alsonotehowthelowerinnerchannelprovidedresistancewhengoldretracedbacktothetrendline.

SUPPORT&RESISTANCE



PivotPointsPivotpointsareparticularlypopularwithForextraders.Youwilloftenhearreferencetointradaytradersusingthembuttheycanalsobeusedonhighertimeframessuchasdailyorweeklycharts.TheyareoneofthefewpredictiveindicatorsavailableastheyuseyesterdaysdatatoprojecttomorrowsS/Rlevels.

DailyPivotPointsTheyconsistofapivotlevelwiththreeresistance(R1,R2,R3)andthreesupportlevels(S1,S2,S3)whichuseyesterdaysclose,highandlowpricesaspartoftheircalculation.HereyoucanseehowpricehasrespectedthedailypivotpointandrallieduptoR1,butthencontinuedtothemidwaypointbetweenR1andR2.ThereisnowayofknowinginadvancewhichoneswillgetrespectedbutmanytradersonlyfocusontradingbetweenPivottoR1orPivottoS1.

Whilstyoucanseereactionsattheselevelsandtheydoattimesappearpredictive,therearealsotimeswheretheyarecompletelyignoredandyouquestionwhyyouhavethemonyourcharts.Youwillseemanystrategiesusingtheselevels,butmypersonalexperiencehasledmetobelieveyoushouldnotusetheselevelsinisolation.ForthisreasonItakemorenoticeofapivotleveliftheycoincidewithanotherlevelofS/Rsuchasamovingaverage,pivotalS/Rorevenanotherpivot.ForexampleIfIseethatWeeklyR2andMonthlyR1areclosetoteachotherIwilldrawabox(likethezonesmentionedearlier)thendeletethepivotlevelstoclearupmycharts.

MonthlyandWeeklyPivotPointsTheweeklyandmonthlypivotpointcalculationsarethesameasthedaily,onlytheyusethepreviousweeks(ormonth's)open,high,lowandclosepointsasopposedtothepreviousdaysdata.HereyoucanseeatightzonebetweentheMonthlyS1andWeeklyE1Iwillpayalotmoreattentiontothislevelofresistanceoveranysinglepivotlevel.Additionallywecanseethereare2xHighWickcandleswhichtriedtobreakabovethepivotsbutfailed,sothisisa3rdreasonastowhythereisweaknessnearthepivotlevels.

SUPPORT&RESISTANCE



Ionlyputpivotlevelsontomychartstemporarilytohighlightareaswherepivotsoverlaporareclosetoeachother.OnceIhavemarkedtheseontothechartswithboxesIthenremovethemasIpreferaclearcharttotradefrom.AlsoPivotpointsdonotcomesuppliedwithMT4asstandardbuttherearemanyversionsfreelyavailableontheinternet.Ihavechosentheonesabovebecausetheyarecleanandsimpleandonlyshowthecurrentpivotlevels.ManyofthePivotPointsyouwillcomeacrosswillshowhistoricallevels.Whilstthiscanbehandytoshowyouhowwellamarkethasrespectedthem(ifatall)theycanmakethechartsverymessyandhardtoworkwith.Whicheverpivotspointsyouchoosewillbedowntopersonalpreference.

FibonacciTherearetwoformsofFibonacci:RetracementsandExtensions.ForS/RlevelsIonlyuseretracementsothisguidewillonlycoverthismethod.

TheretracementtoolisquiteaptlynamedasthisisexactlywhatwearetryingtomeasureRetracements!Whentrendisineffectandweseeasuspectedphase2move(alsoknownascorrections,countertrendorretracements)wemeasurethedistanceofphase1totryandanticipatewherephase2mayend.Howeverrememberthatthemarketsarefractalsoyoucanalsomeasuremuchlongertrends.Formoreinformationonthefractalnatureoftrendspleaserefertoguide1Trends.ForsimplicityIonlyuse38.2%,50%and62.8%retracementlevels,andtakemorenoticeiftheyoverlapwithotherFibsnumbersorformsofS/R.

SUPPORT&RESISTANCE



MovingAverages(MA)

WhilstwecoveredMA'sfortheuseoftrendsinPart1,theycanalsobeusedforS/Rlevels.SomethingtokeepinmindhoweverthefactthatMAs,liketheirnameisimplies,Move!Thereisnogoldenrulestatingwhichperiodsyoushoulduse,orwhichtype(Simple,exponentialetc.)butitismoreimportantyouarefamiliarwiththecharacteristicsoftheMA'syouchoosetouse.AllMA'slagbehindpricesoIonlyplacethemontoacharttemporarilytoseeiftheycoincidewithotherS/Rlevelsbeforeremovingthemtokeepmychartclear.YouwillalsoseemanytextbooksorstrategiesreferringtopricebouncingoffofMA'sbutItreatthemliketrendlinesIwouldneverenteratradesimplybecausepricehastestedeitheratrendlineorMAasIfailedtotradelikethisprofitably.SolikeallofmyanalysisitneedsseveralconfluencesinthesameareabeforeIgiveitanyweight.PersonallyIuseacombinationof8,21,50and200eMA(exponentialMA)butyouwoulddojustaswellusingthesMA(SimpleMA).The50and200areverypopularsoarecloselywatchedbyalotofmarketparticipants,soitmakessensetousetheseastheytendtogetreactionsandactas'dynamicS/R'levels.Howeverthe8and21eMAIdon'treallyuseforS/Ratallbutinsteadvisualisetheareabetweenthe2asacloudandlookforbuyorsellsetupsaroundtheseareas. Pricehasstalledatthe200eMA

afteraparticularlybullishrunup.Alsonotehowthislevelheldasresistanceandwasalsopreviouslysupport.ThelongertheperiodofMA,themorereliabletheytendtobeasS/R,particularlyonhighertimeframesabovetheDaily.Asforintradaytimeframes:- The200MAonH4isvery

similartothe50MAonthedaily

- The200MAonH1isverysimilartothe50MRonH4

Herewecanseehowpriceseemsto'dance'aroundthe50and200interchangeably.WhilstIconsiderittobedynamicS/Randiseasytoidentifyinhindsight,tyingtotradeoffoftheselevelsareproblematicbecausethereissomuchnoisearoundtheMAitself.IthereforonlyuseMA'sasanadditionalconfluenceofS/RalongsideotherformsofS/R.

SUPPORT&RESISTANCE



UsingConfluencesofS/RYouprobablynoticedmyrepeatedreferencestousingconfluencesIcannotstressthisenough.AsatraderitisyourdutytotradehighprobabilitytradesadawayofincreasingtheprobabilityofalevelholdingisifseveralformsofS/R(oranalysis)allsuggestthesameareas.BelowyoucanseemypreferredmethodsofS/R.Ineedataminimumof2frommypreferredlist,butmostoftenIuseallthree.Ionlytakenoticeoftheadditionalconfluencesifoneofmypreferredmethodsalsohighlightsanarea(soIneverusetheadditionalinisolation).

MypreferredCombination- HorizontalS/R- PivotPoints- Fibonacci(50%,

38.2%)

AdditionalConfluences- Moving

Averages- Channels- Internal

Trendlines

OnceIhaveidentifiedmyconfluencesIthendrawboxesonthechartandremovemyindicators.ThiskeepsmytradingchartscleanandsimplewhilstalsohighlightingkeyareasIneedtolookoutfor.

Confluences:Trendline&HorizontalS/R

AspikelowconfirmedthepivotalS/RlevelwhichalsocoincidedwiththelowerChanneltrendline.IhavefoundhorizontalS/Randtrendlinestobequitereliable.

SUPPORT&RESISTANCE



Confluences:Fibonacci;HorizontalS/R;MovingAverages

HerewecanseehowUSDJPYiscoilingupinatriangularpattern.Whilsttheseareusuallycontinuationpatterns(whichwouldsuggestaresumptionoftheuptrend)thereisnowlawsayingtheyhaveto.Wearetradingjustabove97.00pivotalS/RandIwanttoknowwherethenextlevelofsupportisontheweeklychartshould97.00break,andnotedthefollowingconfluencesat93.5693.56isakeylevelofsupportbecause:PivotalS/R38.2%Retracement50eMAButwhatif93.56breakstothedownside?90.34because:PivotalS/R50%Retracement200eMAIparticularlylikethese2levelsbecauseitisnotoftenyousee3confluencesofsupportorresistancewithinsuchtightranges.

SUPPORT&RESISTANCE



Confluences:TrendlineResistance;200eMA;PotentialChartPatternBetweenJuly10thand22ndAUDUSDhadbeencreepingupatrendlineandbrokedowntothepivotalS/Rlevelof0.9130.WhenpricereboundedandmadeabullishrunIextendedthebrokentrendlineandwatchpricerespectthisasanewlevelofresistance.AdditionallyInotedhowthe200eMAwasinthesameareathensawaBearishCandlestickpatternformbeneaththeresistanceconfluence.AtthetimeIwasnotsureifitwasaHeady&Shoulderstop,butIcouldforeseethepotentialforthepatterntoformiftheresistancelevelheld(whichisdid).Whenpricestartedtodeclineitstalledtemporarilyat0.92225nearthePivotalS/Rand50eMA.Whenthislevelbrokepriceusedthe50eMAasresistancebeforerollingover.Thefactthat0.91300wasbrokenimmediatelyalsoconfirmedhowbearishthismovewas.

SUPPORT&RESISTANCE



Confluences:Fibonacci;PivotalS/R;RejectionSpikesWTIOilhadrecentlybrokenaboveadescendingtrendlinebutfoundresistanceatthe110level.Sincehittingresistancepricethentradedsidewaysbetween102.30and110.The102.30levelwasimportanttomeforthefollowingreasons:- 38.2%retracementlevel- PivotalS/R- Brokenresistance(trendline)nowbeingtestedassupport- 2xRejectionspikesofthislevelTherejectionspikesprovidedextraconfidenceasithighlightedhowthebearshadfailedontwoattemptstobreakthislevel.Intheeven102.30breaksthe100isthenextlevelofsupportforthefollowingreasons:- 50%retracement- PivotalS/R

SUPPORT&RESISTANCE



SUMMARY:TherereallyisnothingmagicalaboutsupportorresistanceIseethempurelyasalogicalwayofbreakingdownpricetoaidyourtradingplans.ThereareonlytwooutcomestothebehaviorofanS/Rlevelitwilleitherberespected,oritwillbebroken.IfrespectedgotoplanA,ifitbreaksgotoplanB.Oncecombinedwithtrendlinesyouhaveamorecoherentviewofthemarket,whichwillallowyoutotimeyourentries,exits,orknowwhentokeepoutofthemarketsalltogether.Hereisanexampleofasimpleplan:Ifalevelofsupportholds,wecanlookforbullishtradesinthesamedirectionofabullishtrendforahigherprobabilitytrade.Iftherearemultiplelevelsofsupportinthesameareaitprovidesuswithgreaterconfidencethislevelmayhold.Wecanconsiderplacingourstopbehindthislevelofsupport.Wecanconsiderplacingourtakeprofitnearthenextlevelofresistance.Ifthislevelofsupportbreakswewillgetstoppedout.Ifthislevelissignificantwecanexpectalargerdownsidemovement,andcreateanewtradeplan.- Supportbecomesresistanceandresistancebecomessupport- Thelongeralevelholdsthemoresignificantitisconsideredtobe- Ifasignificantlevelbreaksasignificantsubsequentmovecanbeexpected- UseconfluencesofS/Rtoincreasetheprobabilityofitbeingrespected\- S/Rlevelscanbeusedtoplanentryandexit(SL,TP)IdentifyS/Rusing:- HorizontalS/R- Zones(Spikes,SwingPoints,CongestionAreas)- Trendlines/Channels- PivotPoints- Fibonacci- MovingAveragesForGreaterConfidence- Zoomoutforbiggerpicture- IdentifyS/Ronhighertimeframesthenworkyourwaydowntosmallertimeframesyoutrade.- UseconfluencesofS/R- Combinewithotheranalysis- Allowbreathingroom

SUPPORT&RESISTANCE



REDUCEYOURLEARNINGCURVE:Ihopeyouhaveenjoyedthisseriesandfounditofbenefit.WhilstIwouldliketothinkyouarenowexpertanalystsjustfromreadingthisseries,likeanythinginlife,itwilltaketimetomasterwhichwillrequirepracticeandexperimentationhoweveragreatwayofspeedinguptheprocessistowatchothersperformanalysis.

TradersCorner FaceBook Twitter RSSIwouldhighlyencourageyoutosubscribetotheThinkForexYouTubechannelandattendourweeklywebinarsastheyincludedthemethodsusedthroughouttheseries.

Delgado - Forex: Technical Analysis; the Support and Resistance.

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Transcript of Delgado - Forex: Technical Analysis; the Support and Resistance.