- 1 Overview of Support and Resistance
- 2 Setting up support and resistance on IQ Option
- 3 How to draw support and resistance lines
- 4 Pros and Cons of Using Support and Resistance Lines
- 5 Trading using Support and Resistance on IQ Option
- 6 Q&A: Support and Resistance Lines
- 7 GENERAL RISK WARNING
How to draw support and resistance lines in order to be able to rely on them afterwards? Not every horizontal line on a chart has the same strength. Traders who largely rely on technical analysis cannot overlook the importance of support and resistance levels. These two lines answer a simple question: At what points does the price seem to fluctuate within a specific time interval?
By knowing these levels, it then becomes easy to know your possible trade entry points as well as where the trend is likely to reverse.
Another huge advantage of using support and resistance levels is that they can be used alongside many technical indicators. This increases the probability of entering winning trades.
Finally, they are not complicated as you’ll see in this guide.
Overview of Support and Resistance
Support lines are drawn to mark the lowest price ranges a chart reaches during a specific period. For example, during a 1 hour period, you’ll notice a certain low price range where prices reach in the chart before bouncing back upwards. To have valid support, your horizontal line must touch at least 2 lows.
Resistance lines on the other hand are drawn to mark the highest price ranges a chart reaches during a specific period. For example, during a 1 hour period, the price might reach a certain price range several times before it bounces back down.
You should note that the price points do not have to be exactly the same. But they must be within the same price range. In addition, support and resistance lines do not necessarily have to be horizontal. In the case of an uptrend, the resistance line can be charted to connect the higher lows of the trend.
Setting up support and resistance on IQ Option
The easiest way to set up support and resistance on IQ Option is by using the horizontal line provided in the graphical tools feature as seen in the image above.
To draw a support line, select a horizontal line. Next place one end on the low of a particular session. Then extend it to touch one or more lows of that session.
To draw a resistance line, use the same technique. However, the line should connect the highs of that session.
If your line touches more than 2 price points, the support or resistance is considered a strong one. If prices manage to break out of a strong support/resistance, the resulting trend is usually quite strong.
How to draw support and resistance lines
When a support line touches many lows, it’s considered strong support. On the other hand, if a resistance line touches many highs, it’s considered a strong resistance. Prices will take a while before they break out of these levels. Thus, price action trading within these levels is more reliable.
When support and resistance levels are weak, prices tend to break out of them quite easily. Price action trading, therefore, becomes quite difficult since you’ll have no idea where the markets will turn.
As prices break out of a support or resistance line, new support and resistance levels are created. For example, if prices break out of a support level, it now becomes the resistance level and vice versa.
Pros and Cons of Using Support and Resistance Lines
- Pros: 😃
- Helps traders identify potential entry and exit points
- Can be used with various technical indicators for better accuracy
- Applicable to different time frames and asset classes
- Cons: 😞
- Not foolproof – false breakouts can occur
- Requires practice and skill to draw and interpret correctly
|How to Avoid Them
|Ignoring higher time frames when drawing lines
|Always consider higher time frames to gain a more comprehensive understanding of the market
|Relying solely on exact price points
|Recognize that support and resistance lines represent price zones, not just exact price points, and draw lines accordingly
|Using too many lines on the chart
|Focus on the most significant support and resistance levels to avoid clutter and confusion
Which time frame is best for support and resistance?
Let’s agree that most traders using the IQ Option platform are day traders. We usually operate on 5-minute or 15-minute time frame charts. To determine support and resistance levels you can do it directly from the interval on which you are looking for a position. Sometimes, however, and I encourage you to do this, it is worth looking at the h1 or h4 charts, or even the daily chart, to get a complete picture of the market situation.
With support and resistance at the higher time frames, we have an overview of the bigger picture and can better plan our next moves depending on where the market is going.
Trading using Support and Resistance on IQ Option
If you already know how to draw support and resistance lines, it’s time to put it to good use. We will briefly talk about simple methods of trading on drawn lines.
Using the chart above, there are clearly strong support and resistance levels. This means that the chances of prices breaking out of these levels is quite low. The points where price touches either support or resistance are your trade entries.
If the price touches the support, you should enter a long buy position (about 5 minutes). If the price touches the resistance, you should also enter a long sell position.
Learning how to spot and draw support and resistance levels is one of the crucial skills you must learn as a trader. As you’ve seen, trading using these technical tools is quite easy. However, the profit potential they present is massive.
Now that you know how to draw support and resistance lines on your charts, practice using them in your IQ Option demo account. We’d love to hear your results in the comments section below.
Q&A: Support and Resistance Lines
- Q: What is the significance of strong support and resistance lines?
- A: Strong support and resistance lines are price levels that have been tested multiple times, making them more reliable for trading purposes. Breaking through a strong line often leads to a strong trend in the price movement.
- Q: How do I know if a support or resistance line is strong?
- A: A strong support or resistance line touches at least two or more price points within the same price range. The more points it touches, the stronger the line.
- Q: Can support and resistance lines be used for all types of assets?
- A: Yes, support and resistance lines can be applied to various asset classes, including stocks, forex, commodities, and cryptocurrencies.
- Q: What should I do if the price breaks through a support or resistance line?
- A: If the price breaks through a support or resistance line, it may indicate a strong trend. Traders should monitor the situation and consider adjusting their trading strategy accordingly.
- Q: How can I improve my ability to draw and interpret support and resistance lines?
- A: Practice is essential for improving your skills. Use a demo account to draw and interpret support and resistance lines on various time frames and assets without risking real money.
GENERAL RISK WARNING
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