points on the chart as a higher time frame shows us the bigger picture. Blow off tops and panic sell-offs are a result of extreme movement in price and volume in a stock. Since this fakey showed such aggressive reversal and a false-break of the key resistance, there was a high-probability that price would continue lower following the signal. A support or resistance level is formed when a markets price action reverses and changes direction, leaving behind a peak or trough (swing point) in the market. On the first case ( the candle on the left that we marked for you clearly, the price fell on the next candle which made it a valid reversal. Support and Resistance Indicators, indicators are a great addition when looking at support and resistance levels. The close of the bar prior to the gap is considered to be support on gap ups and resistance on gap downs. Indicators Used in the Support and Resistance Zone Strategy.
Support and resistance levels can carve out trading ranges like we see in the chart below and they also can be seen in trending markets as a market retraces and leaves behind swing points. Price will often respect these support and resistance levels, in other words, they tend to contain price movement, until of course price breaks through them.
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Now that we know the role of S R Lines, which from now on we will call Zones. Typically after a blow off top, an immediate response will follow in the opposite direction due to profit taking and new shorts speculating that a top is at hand. Oscillators like support and resistance levels will bounce from one extreme to the next. Our stop loss should be placed on the other side of the zone and not too close to the level to give it some space as we said it is a Zone, Putting the Stop loss there because this the end of the trade. Please leave a comment below if you have any questions about this strategy! This is a good time to look for take the opposite side of the primary trend. Keep an open mind; most of the time, you will see zones of support and resistance. The First step of the support and resistance zone strategy.