The top five techniques that successful traders use to identify where support and resistance lie are Fibonacci Levels, Pivot Points, Moving Averages, Trend Lines, and Chart Patterns.
Fibonacci Levels: Set your Fibonacci to 23.6%, 38.6%, 50.0% and 61.8% as support and resistance levels. These levels will help you determine when the price swings low to high or high to low. Tip: Many traders only trade when the price breaks out of the 61.8%level, which means a reversal of trend.
Pivot Points: This indicator is commonly used by breakout traders or range-bound traders and is based on the previous period. Simply put, prices above the pivot are bullish and prices below the pivot are bearish. To use pivot points, identify the upper resistance or lower support levels and target profit at S1, S2 or R1, R2 respectively.
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Moving Averages: This is the most commonly used indicator. A good setup for this indicator is to set your EMAs (Exponential Moving Average) at 200, 100, 62, and 23. Under this setup, you will see the price bouncing off the EMA support and resistance. When the price breaks through the EMA channel, most of the time that means that the price broke through the resistance of support level and you can enter a trade.
Trend Lines: As the name suggests, trend lines show in which direction or trend the market is moving. By drawing trend lines, you can determine both how long to stay in a trade and, also, when to exit or reverse your trade.
Chart Patterns: Knowing chart patterns and how they can help you predict price direction is critical to every trader. Chart patterns come in many different shapes. Some examples are triangles whether they are ascending or descending, double top or bottom, head and shoulders, and reverse head and shoulders.
Once you master these techniques, you will start making more profits when you trade.
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