Illustrations on Support and Resistance V1.0

Written by Bitmida analyst qiuyue

On support

When we say support, we refer to a point or a zone where price stops falling in a short term or in the long run and bounces back to some extent. However, the price could pick up without having to touch support. Bulls are likely to buy in before the price hitting support, resulting in price pullback.

On resistance

Resistance refers to a point or a zone where the price is prevented from rising and often falls back shortly or keeps falling without any sign of reverse, or sometimes even plummet. However, price could drop anytime before reaching resistance. Bulls would sell off in fear of a hard strike on resistance, resulting in price decline.

Either support or resistance is not an indicator that price will arrive precisely at the point or zone. CM’s actions or market sentiment could temporarily drive the price to break out of the range and then pull back by the force of support or resistance.

On intraday support and resistance

The given intraday support and resistance are effective only within that day. They usually function for one day and weaken in their forces or become invalid with the passing of time.

On valid period

As trading is happening all the time, support and resistance of ranges will not stay the same. They often take effect within the day and are gradually diverted and then possibly became ineffective or invalid. Sometimes, they still work the next day but are better to be re-estimated. There are also exceptions — if the price keeps moving within a range, then support and resistance are effective for a long time. Silver, for instance, now moves between an effective range I calculated, which does not need to be updated in weeks.

Support and resistance are most effective when the price touches them the first time. Their functions are wearing out along with the next and more tests. Breakout happens in extreme conditions yet quite often. Therefore, it’s safer to open positions upon the first test and abandon following chances even the latter would generate a larger profit. Quite a few movements bear small profit at the first test and bring large profit after several tests as affected by support/resistance. If you take the chance to enter in such conditions, I suggest you put an S/L on your positions to minimize your risks.

It’s crucial to understand support and resistance and make sensible decisions before taking the risk for a good return.