Support and Resistance Advanced Trading Strategy Analysing Reliability and Optimisation

  1. Technical Analysis
    1. How Technical Analysis Can Help You Make Informed Decisions in Mastering Stock Trading
    2. Technical Analysis Setting Realistic Expectations
    3. Introduction to Technical Analysis and Assumptions
    4. Technical analysis for Profitable Trades Analyzing Open, High, Low, and Close
    5. Candlestick Charts How Line and Bar chart Enhance Market Analysis
    6. Japanese Candlesticks History, Anatomy From Ancient Japan to Global Trading Phenomenon
    7. Time Frames in Technical Analysis Unlocking the Power of Choosing the Right Interval for Successful Trading strategy
    8. Candlestick Patterns How to Identify and Interpret Trading Signals
    9. Marubozu and Bullish Marubozu Understanding What is Essential Single Candlestick Patterns for Traders
    10. Marubozu Candlestick Setting Stop Loss The Ultimate Guide to Trading Patterns
    11. Spinning Top Candlestick Navigating Downtrends A Trader’s Guide to Identifying Reversal Signals
    12. Spinning Top and Doji How to Interpret and Navigating Market Uncertainty
    13. Paper umbrella and hammer candlestick pattern Unlock Profitable Trades
    14. Hanging man candlestick pattern Profitable share market trading Strategies
    15. Shooting Star Candlestick Pattern Boost Your Trading Success Guide
    16. Engulfing Patterns and Bullish Engulfing Signals Unlock Trading Opportunities
    17. Bearish Engulfing and Doji for Trading Success Profitable Strategies with Candlestick Patterns
    18. Multiple Candlestick Patterns Insights and Strategies Boost Your Trading
    19. Bullish Harami Candlestick Pattern for Trend Reversal Strategies
    20. Shorting Guide using the Bearish Harami Pattern Trade Reversals with Confidence
    21. Morning Star Candlestick Pattern and Gap Analysis To Maximise Your Profits
    22. Evening Star Candlestick Pattern Learn How to Identify and Trade to Boost Your Trading Success
    23. Support and Resistance Basics A Comprehensive Guide to Setting Targets and Navigate the Markets with Confidence
    24. Support and Resistance Learn How to Draw and Identify Key Levels Unlocking Trading Opportunities
    25. Support and Resistance Advanced Trading Strategy Analysing Reliability and Optimisation
    26. Volume Trends How to Leverage for Successful Trading Strategy
    27. Volume Analysis A Key Checklist for Successful Stock Trading
    28. Moving Averages A Comprehensive Guide for Trend Analysis in Stock Trading
    29. How to Use Moving Averages for Profitable Trading Strategy and Potential Opportunities
    30. Moving Average Crossover Boost Your Trading Success with A Reliable Strategy
    31. Technical indicators How to Use Technical Tools for Better Decision-Making Unlocking the Power of Trading
    32. Relative Strength Index RSI Analysing Overbought and Oversold Signals to Boost Your Trading Strategy
    33. MACD How to Interpret and Utilize Moving Average Convergence and Divergence for Profitable Trading
    34. Bollinger Bands The Power of Indicators in Trading and checklist
    35. Fibonacci Retracements Unravelling the Power in Stock Markets
    36. Mastering Fibonacci Retracement A Step-by-Step Guide for Effective Trading
    37. Dow Theory Decoding Unveiling the Principles of Technical Analysis
    38. Dow Theory Patterns Unlocking Trading Opportunities with Double and Triple Formations
    39. Trading Range Explained chart indicator example strategy Profit from Market Ranges
    40. Flag Pattern and Range Breakout How to Capitalise Trading Beyond Boundaries
    41. Risk reward ratio Understanding RRR in Dow Theory
    42. Technical Analysis Tools for Traders Charting Software Guide Enhance Your Trading
    43. How to Select Stocks for Trading Success and Building Your Opportunity Universe
    44. Short Term Trading Unleashing the Power of Scalping Strategies
    45. ADX Indicator and 7 more indicator tools for Trend Strength Analysis
Marketopedia / Technical Analysis / Support and Resistance Advanced Trading Strategy Analysing Reliability and Optimisation

 Reliability of S&R

The support and resistance lines serve to indicate a reversal of prices but should not be taken as absolute. As with all aspects of technical analysis, the probability of a given signal occurring needs to be considered.

The graph for Zensar Technologies can provide insight. It contains a wealth of data that can be used to evaluate the company’s performance.

Current Market Price = 204

The amount of resistance is 214. 

It is likely that Zensar Technologies would run into resistance at 214 if it starts to climb. This could lead to sellers appearing who could drag the prices down. What is the assurance that this threshold will be met? To put it another way, what level of reliance can we have on the resistance line? Unfortunately, there is no definitive answer.

Looking back, Zensar Technologies has a tendency to act differently when it reaches 214. The good news is this price action zone is always consistent over time. As far as technical analysis goes, it goes without saying that support and resistance levels will almost certainly be observed. After all, history has a habit of repeating itself!

From my experience as a trader, I have found that S&R points that are well-developed tend to be respected.

 Optimisation and checklist

We have reached a critical moment in this module; now is the time to begin uncovering various optimisation strategies that aid in selecting lucrative trades. The aim is to identify advantageous trading signals rather than to detect numerous unbeneficial ones.

Optimisation is a process of refining an activity to achieve the greatest possible outcome. In this case, it is about locating trades that are advantageous.

Let us take a look at the bullish marubuzo, one of the earliest candlestick patterns we learnt. It suggests a long trade close to the end of the formation, with the low point serving as our stoploss.

Let us assume that the bullish marubuzo has the following credentials:

The trading day began with an opening of 432, and the high was 449. The low for the day was 430, and it ended with a closing of 448.

Hence, the entry point for taking a long trade is around 448, with 430 set as the stop loss.

What happens when the marubuzo’s low and a long-standing support line come together? This is an impressive combination of two technical principles.

We have two reasons to invest in this venture. Consider the implications of this decision carefully.

  1. The bullish marubuzo pattern is a well-known signal to enter a long position in the market.
  1. Support near the stop loss level indicates strong buying activity at the lower price point.

When trading in a market that is unpredictable, what every trader needs is a carefully planned trade setup. The presence of both a marubuzo and support near the low suggest that going long is the preferred course of action.

This gives rise to an essential concept. Suppose we created a checklist (or, if you prefer, a framework) for each trade we contemplate. 

This checklist would act like a set of guidelines we have to abide by before entering the market. If these conditions are in place, then we can commit to the trade; otherwise, we should find another trade opportunity that meets the prerequisites.

Some say that much of a trader’s success lies in discipline. From my point of view, a checklist can be an effective means of promoting self-discipline and thereby prevent impetuous, ill-considered trading choices.

To start, we have two essential elements of the checklist:

  1. It is essential that the stock form a distinct candlestick pattern.
  1. We have discovered some of the common patterns in this module. Utilize these patterns to satisfy the requirements of the checklist as a starting point.
  1. S&R should be adhered to, and the stop loss price should be close to it.
  1. For a long trade to be successful, the lows of the pattern should lie close to the support levels.
  1. When making a short-term transaction, an appropriate peak of the pattern should be close to the point of resistance.

As we keep learning about TA concepts in this module, we’ll create a checklist that will comprise 6 points. We’ll then assign values to each one of them – e.g. the fourth point may not be as significant as the first, but more critical than a hundred other factors that could divert the trader.