If you are trading with technical analysis one of the keys to making longer term profits is being able to use support and resistance to make profits.
Most novice traders however fail to trade with support and resistance correctly so here are some tips.
1. Support and resistance does not work in short time periods
Most novice traders try using support and resistance in daily periods – Forget it, you will lose.
Why?
Because these levels are totally meaningless.
Trillions of dollars a day are traded by millions of participants and to say that support and resistance is valid in such short time frames as a day or a few hours is laughable.
The only people who take notice of these levels are the small losing minority of day traders.
Don’t believe me?
Ask any day trader for a real time track record of profits using support and resistance and you won’t get one.
Volatility is random in short time frames and therefore any technical indicator you try to use wont work.
Novices try day trading and lose and wonder why, they need to get educated study volatility and standard deviation.
2. Support and Resistance Test and Time Span
Generally you want several tests (the more the better) and gaps between the tests.
The more tests you have the better, this means that traders will generally pay attention to them and when they hold are or broken.
However, when looking for support on resistance don’t just use the daily chart – Look at the weekly chart which will give you the bigger picture.
3. A Great Trade set up
Is when you get critical support and resistance on the longer weekly chart lining up with similar levels on the daily chart – These levels are very significant and you should look to trade them.
4. The Biggest mistake made by novice traders
The biggest mistake made by novice traders is they simply see support and resistance levels and trade into them and “hope” the market reacts in the way they want.
You will never make money this way -you must have price momentum in your favor.
Price momentum must support the way you are going to trade and we will look at this in more detail in part 2 of this article.
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Hello I am no financial expert and my question may ...
By: geoff | 25-09-2008
hello I am no financial expert and my question may verify that. In stead of a $700,000,000,000 bail out, which does not help regular people solve the mortgage pickle they are in. So those mortgages will still fail. Interest rates will still be high and so there will be no movement in the housing market.
Let's say the mortgage interest rate was lowered to 2 or 3% on a fixed mortgage for 2 years. And very tight rules were mandated, to ensure that the borrower could afford to pay the debt. If the borrower still cannot afford mortgage, give them the oppotunity to get into a house that they can afford, and the loss should be shared. After all the banks are equally to blame.
On 3% the banks are still doubling there money in 30 yrs. They get a short term shot in the arm from all the refinancing. But long term they will have less revenue, but that revenue will be alot more secure. The banks will need to streamline and run a transparent, cost affective business. To make the most of thier longterm reduction in profit. The fat cat needs to go on a diet. Feeding the cat more will( bailout) will only cause him to eat more.
Lower interest rates will bring more people onto the bottom of the housing market, that will stimulate activity through out the market.
Most Home owners will have atleast $200.-$1000. a month extra to save or spend. this will also help stimulate the economy.
Bottom line, this maybe the answer or not, maybe other common sense actions can be taken along with this. One thing is for sure The banks and wall street need to be overhauled, told what they can do and cannot do and most all given the oppotunity to learn from thier mistakes.
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