Resistance or Break? A strategy to identify the chart’s support/resistance wall and strike for the first touch
“I’m confident this should bounce here!” I went long against the trend, but it was quickly pierced through and I ended up taking a big loss… In FX trading, don’t you have these bitter, all-too-common experiences?
“The support line I drew myself doesn’t seem to be noticed by anyone and doesn’t function at all…”
“I’ve displayed multiple moving averages, but I still don’t know which one will bounce, so I’m hesitant.”
“I entered thinking it was a strong line that had bounced many times, but it suddenly broke out…”
To consistently earn profits in trading, you need to accurately identify the price barriers of the market—the support (lower price level) and resistance (upper price level). This time, we’ll introduce the true function of “support and resistance” that many traders struggle with, the “First Touch Rule” that dramatically improves win rate, and a powerful visual tool to illustrate them.
The true nature of Support & Resistance is a “collective psychology of investors”
First of all, why does the market rebound at certain price ranges?Because the “psychology” of investors around the world concentrates there.
The price range where many investors think “I want to buy if it drops enough (it’s cheap)” becomes the support, and the price range where many investors think “I’ll sell to take profit if it rises enough” becomes the resistance. And once a wall is breached, the roles reverse — resistance becomes support (the so-called “role reversal”)—which is well known among traders.
The same can be said for not only horizontal lines but also trendlines. However, for trendlines to function, they must be long-term lines that many people around the world consciously watch. Lines drawn briefly for a short time won’t move crowd psychology, and they’ll be easily broken.