Tuesday, January 17, 2012

To determine buy or sell signal by Support and Resistance

By Mao Piseth
In trading decision there are methods such as Trend following or Trailing stop system, other people also use indicators Pattern , Trend Line , Elliot Wave, Candlestick to make a decision.

In the world of investment we have to study the good point and bad point,also the one that is better than another one,we have to know all about it,but we can't use it all, we should learn to know what other investors
think  and will do and which point we have to be careful as a proverb say "Know the enemy,Know yourself, fight 100 times,gotta win 100 times"

There is a technique that one group use in buying and selling is Support and Resistance

"Support is a level at which bulls (i.e., buyers) take control over the prices and prevent them from falling lower.

Resistance, on the other hand, is the point at which sellers (bears) take control of prices and prevent them from rising higher. The price at which a trade takes place is the price at which a bull and bear agree to do business. It represents the consensus of their expectations.

Support levels indicate the price where the most of investors believe that prices will move higher. Resistance levels indicate the price at which the most of investors feel prices will move lower. " 

As we ever learned about the law of Supply and Demand, it is easy to understand, the Support line means when buyers more than sellers,then price is in blue candlestick.however,if we buy at support line but price still continue to drop,it means price broke the support,this case we have to set the stop loss that we calculate before buying.In this kind of trade the person who like taking risks and have enough capital like it much.

The resistance have sellers to resist,however if the price continue to shoot up and broke the Resistance line,that means buyers overwhelmed the sellers,we buy follow other buyers,after that the resistance that was broken became a new support.

Take a look at Stock chart below

According to the chart we should buy at 16.75$ after it touch the support line for the second time,the Volume also identify a buy signal and sell to take profit at resistance line 18.50$, => 18.50-16.75=1.75$=10.44%
we have to trade with a system,if price go against us,it means if price continue to drop,for example it drop 16.25 or 16.00......,in this case we have to cut loss as already determine before trading, or other way is to keep position open in expected that price will rise to our buying price at 16.75$ or it can rise to 17.25$,so profit is realized.

Take a look at one more chart below

We draw the Fibonacci Retracement we will see the support and resistance by Fibonacci number.
by using support and resistance we will have profit 1 + profit 2 =(21+36)*100/592 = 9.8%
in trading we have to  a clear discipline ,must have buy point and sell point that was already planned,
with high risk,have to plan to buy or sell to reduce risk.


Trading using support and resistance is really helpful for investors after they understand what cause it to happen and the market psychology of investors.
Remember to use stop loss to reduce the risk after buying in case price go against us.

Finally, let's see this Support& Resistance VDO.

Do you like this post?


Post a Comment

Related Posts with Thumbnails