Trading Futures……… Growing Profits

Understanding Support and Resistance

Support and Resistance

Two terms that are commonly misunderstood by inexperienced technical traders are support and resistance. You will notice that price levels cause responses by the market. In a falling market, prices will “bounce” off the base of low levels, which we term support. When the prices have a difficult time breaking above a certain point, resistance has been met. Some traders will refer to support and resistance as demand and supply.

Support and resistance lines are basically trend lines. The support line is below the price structure and the resistance line is above it.

(Figure 1) These lines represent floors or ceilings that a price has difficulty breaking through. The more times a support or resistance line is tested, the more accurate it becomes.

If a support line is tested three or more times and breaks above, it then becomes a new resistance line, as in Figure 2.

The same can be said when a resistance line is broken. If the trend travels through the line after testing it a few times, it becomes a new support line. (Figure 3)
Figure 1 Support line is below the price structure, resistance line is above it. (If resistance is broken, it becomes a new support.)

Figure 2 Broken support line becomes new resistance line.


Figure 3 Broken resistance line becomes new support line.

Subscribe to our Trading Service Free for 30 Days

Here’s what real investors like YOU have to say about Visible Trends-

Jim: I finished reading your futures trading newsletter last night. Thank you for sending it. It is one of the best and most comprehensive pieces I have read on the economy, and we read several newspapers every day, including the Wall Street Journal. I marked my calendar for March 13, looking forward to your next newsletter. Cheers... Al Bradshaw

Tag Cloud

Disclaimer

By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that JL Futures believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. This material has been prepared by a sales or trading employee or agent of JL Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by a Research Department. Distribution in some jurisdictions may be prohibited or restricted by law. Persons in possession of this communication indirectly should inform themselves about and observe any such prohibition or restrictions. To the extent that you have received this communication indirectly and solicitations are prohibited in your jurisdiction without registration, the market commentary in this communication should not be considered a solicitation.