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Are support resistance zones or levels better? 4 tips to trade zones

6 reasons support resistance is important; why support resistance is tricky

The concept of support and resistance is so important to trading because support resistance:

  1. Is created by human psychology
  2. Levels are associated with greed and fear
  3. Support and resistance makes prices go zig zag
  4. Leads to emergence of chart patterns
  5. Deal with entry levels, target price, stop loss
  6. Is elusive

On hindsight, it is always easy to spot support resistance levels yet identifying the right one ‘at-the-moment’ requires a lot of experience and some leap of faith.

support resistance

In this article, we will zoom into one aspect of support resistance levels:

  1. Should levels be taken as a single value or should they be treated as a zone?
  2. Which is better?
  3. What are the trading psychologies associated with which.

 

Are support resistance zones or levels better? Inviting participation

I am inviting students to participate by logging in to comment. In this relatively straight forward quiz, three(3) qualifying participants# (to be decided by me based on clarity and correctness of answer) will receive one(1) voucher worth $40/- each to attend 4M or BP class. Cut-off 12 September 2pm.

 

UPDATE: Treating support resistance as a zone best approach

  1. Because of differences analysing, trading the market as well as different price feeds, tools available, each trader arrives at one value for support resistance level.
  2. Stitch these values for the millions of people trading in the forex market together, even a level that most traders consent to becomes a contiguous zone.

 

4 tips to trade support resistance zones

  1. Instead of drawing support resistance levels with 1 line only, draw a zone with two lines: first line based on line chart (which gives closing price) second line based on highest or lowest price tail of candlesticks.
  2. Associate the zone with congestion and increased price volatility. Until price moves out of zone decisively, it can go in any direction so refrain from any kind of ‘all in’ strategy.
  3. Never play ‘breakout‘. For each successful breakout, there are many other false breaks that mark stop hunting, bull/bear traps etc.
  4. When prices are caught inside support resistance zones, best strategies to employ include A) fade false breakouts B) trade reversal setup C) wait for retracement to enter if a real breakout is expected.

Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’.

“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.

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15 thoughts on “Are support resistance zones or levels better? 4 tips to trade zones”

  1. Vince Ding says:

    Personally, I prefer to have a Zone plotted out on the chart when identifying the Support & Resistance Levels. This will result in a “Wall” like area where I can monitor the price action to see whether this zone is strong enough to stay supported/resisted or weak enough to be penetrated through.

    On psychology side, it also reveals whether the bull or bear is stronger and/or weaker.

  2. Kevin Tan says:

    1.Should levels be taken as a single value or should they be treated as a zone? Ans : A Zone because price will always test and re-test these levels . Until price moves away from the zone, then a new trend has started
     
    2.Which is better? Ans: Zone is better.
     
    3.What are the trading psychologies associated with which.
    When a resistance or support is broken, we can consider that as a breakout. Many new traders will rush in at the upper most of the breakout, not know that a retracement will take place . With this retracement , a zone will form and we have to patiently wait for the price to move out of the zone to ensure that the breakout is a true and not false one. – By Kevin Tan

  3. Tavion Chee Yue Tan says:

    1. Should levels be taken as a single value or should they be treated as a zone?
    2. Which is better?
    3. What are the trading psychologies associated with which.
     
    1. Depends on how often the points touch from past to present and how far the zone is apart from resistance to resistance, support to support and the current flow that is driving it.
     
    2. If a support or resistance that has been constantly touched on or supported and the distance of the zone apart from point up and down is about 10-80 pips away (depending on the timeframe). i would take it as a zone for support & resistance. However if the zone is somewhat far apart about 100 pips away after an entry trigger i would take the Target price, stop loss & shifting of stop loss as a single value.
     
    3. Psychologies associated with which
    – Unsure if price is really supported or will it break suddenly.
    – Stop of trade as soon as price falls back into zone of support
    – Attempting early stop loss unsure of price support
    – And lastly my most favorite catching of falling knife trade hoping it would drop a bit more.

    1. Tavion Chee Yue Tan says:

      Thought of 2 more for Number 3 while i was showering
      – After ending the trade the looking for imaginary entry point to enter again
      – The 1st leap of faith not enough Woohoo price cheaper now let jump again and exit 1 when price goes up. which normally ended up with both drowning

  4. Glendon Goh says:

    Depends. For short timeframes (H1, H4) zones would be better because that would be the area where the H1, H4 candles would be testing. A clear break of that zone would give us some confirmation towards the chart’s direction. For long timeframes (D1, W1), levels would be better because it’s more obvious. Obvious means easier for market players to identify thus makes it a significant value. GBPUSD as example where levels were identified on daily and respected initially by the H4 candles. (http://db.tt/OjmxNFht)

  5. Ow Yong says:

    Let me try out my luck:
     
    1.Should levels be taken as a single value or should they be treated as a zone?
    Raymond comments: I will treat them as a zone.
     
    2.Which is better?
    Raymond comments: I believe there are no better way or right or wrong. It depends on a trader’s habit and preferred way of analysing the market. Some trader likes to use plot lines on the chart or some trader like to plot zones. For me I will prefer to plot lines on the charts and treat them as a zone which will project around 30 pips from the lines drawn on the chart.
     
    3.What are the trading psychologies associated with which.
    Raymond comments: if traders who treat levels as a zone, they will be alerted to levels earlier than traders who treat levels as a single value. Eg, a EURUSD support level at 1.3000, zone traders will be alerted that price is at support when price is at 1.3020 and price may slow or range at support, while single value traders will only make that judgement when price touch 1.3000. In a breakout scenario, zone traders will feel that 1.3000 will only be violated after rice move below 1.2970, while single value trader will feel level 1.3000 is violated and clear support when price closed at 1.2990.
     
    Hope it make sense. 

  6. Soh Tiong Hum says:

    Hi gentlemen, good attempt. I will make an evaluation and announce tomorrow (including completing the posting). Last qualifying entry by Ow Yong but I encourage other members to reply.

  7. Dickson Mah says:

    Support is the price level at which buyers are expected to enter the market and this will prevent the price from falling further.
     
    The market has memory, so as the price declines previous lows, buyers are more likely to buy and sellers are more likely to sell. By the time the price reaches the support level, buyers will enter the market in sufficient numbers to prevent further fall in the price and create a support level.
     
    Resistance is where the price stops going up. This is a level where sellers are expected to enter the market in sufficient numbers to prevent further increases in prices, and also a level where they buying interest has decreased significantly.
     
    Personally, I think it is kind of hard to take levels as a single value and it would be easier treated as a zone. This is because different levels comes come together at or around the same area to form support or resistance zone. For example, a Fibonacci level, trendlines, the open and close, high and low of a candlestick, etc.
     
    Having said that, there are some values which prices are sensitive and pay much respect to i.e. round numbers, Fibonacci numbers, historical High/Low etc.
     
    Previously, I would draw a line to identify horizontal support and resistance. I will try my best to find the best line and give myself random reasons to believe that is the ideal support or resistance level. After learning the use of drawing boxes, it makes it easier to identify SR because many boxes high/low is clearly seen around the same region. This relieves me from thinking too much.
     
    Not sure if it is out of point.

  8. Tan Quanlong Adrian says:

    I would say support and resistance zones would be correct.
     
    It is hard to pinpoint an exact price level where buyers or sellers would place their orders, as there are too many differences.
     
    Eg. differences in price feeds, differences in the ways people analyze a chart. Some people use the candle wicks to draw support/resistance, some use candle bodies (open and close) to draw support/resistance.
     
    So because of all of these differences, it is likely that the buy and sell orders of different traders are spread across a zone rather than an exact price level.

  9. Michelle says:

    I know I’m late but would like to give a try. Sorry for late reply.
     
    Should levels be taken as a single value or should they be treated as a zone?
    A: Treated as a zone.
     
    Which is better?
    A: Zone is better. When the candles break a zone, we are sure that we are not trap in a zone and have to wait and wait for candle to break through.
     
    What are the trading psychologies associated with which?
    A: When the single value is taken, there may be another single value coming. So trader may trap in this 2 single value area which is the zone and may give up the trade due to don’t know which direction the candle will go.
     
    When trader take a trade after clear a zone, the direction is clearer and cos is not caught in the zone area the confident level for holding this trade is higher.

  10. Soh Tiong Hum says:

    Thanks folks for your participation. Overall I like feedback from Adrian Tan and Dickson Mah the most.
     

    Personally, I think it is kind of hard to take levels as a single value and it would be easier treated as a zone. This is because different levels comes come together at or around the same area to form support or resistance zone. For example, a Fibonacci level, trendlines, the open and close, high and low of a candlestick, etc. – Dickson Mah

     

    Eg. differences in price feeds, differences in the ways people analyze a chart. Some people use the candle wicks to draw support/resistance, some use candle bodies (open and close) to draw support/resistance.
    So because of all of these differences, it is likely that the buy and sell orders of different traders are spread across a zone rather than an exact price level. – Adrian Tan

     
    Because I set Ow Yong’s entry as the last one, Ow Yong, Vince Ding and Tavion Tan will receive one voucher each. Cynthia will contact you gentlemen shortly.

    1. Vince Ding says:

      Wuhoo…Thanks! :)

    2. Tavion Chee Yue Tan says:

      Hi im not too sure about point (A) & (B)

      When prices are caught inside support resistance zones, best strategies to employ include A) fade false breakouts B) trade reversal setup C) wait for retracement to enter if a real breakout is expected.

      Not too sure what does fade false breakouts mean & as for reversal setup does it mean that if flow Eg. is currently bullish fails to give a higher high and trade on the reversal opportunity?

      1. Soh Tiong Hum says:

        Hi Tavion, example for you. False breakout above resistance zone, falls back, retests, reversal sequence. Plenty of chances to sell high buy low. Not buy high pray for higher.

        false breakout

        1. Tavion Chee Yue Tan says:

          Thank you for the explanation.

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