Support & Resistance Trading in Stock Market | Price Action Trading

Summary

This video offers a comprehensive explanation of support and resistance in trading. It describes support as the price level where buyers are ready to purchase, and resistance as the level where sellers want to sell. The speaker emphasizes that these are not fixed lines but zones. Through detailed examples, such as the fluctuating price of gold, the video demonstrates how to trade based on these principles. It also touches on the use of pivot points and how traders can identify potential price movements, set targets, and manage risk effectively.

Takeaways

• 📊 Support refers to the price level where buyers are willing to buy, preventing the price from falling further.
• 📉 Resistance is the level where sellers are active, pushing the price down when it reaches that point.
• 🛑 Support and resistance are zones, not specific lines, that indicate buyer and seller activity.
• ⚖️ Simple supply and demand principles dictate that if buyers outweigh sellers at support, prices go up, and if sellers outweigh buyers at resistance, prices fall.
• 🔄 When a price breaks through resistance, it may continue upward toward the next resistance zone, and the same applies in reverse for support.
• 📈 Plotting support and resistance manually using chart tools helps in understanding price trends and anticipating market behavior.
• 📐 Use rectangles or horizontal lines to mark zones of support and resistance, focusing on 'last swings' where the price changes direction.
• 💡 Advanced analysis involves recognizing when sellers are weak (resistance breaks) and when buyers are weak (support breaks).
• 🧠 Human psychology plays a key role in market behavior, as fear and greed drive buying at low prices (support) and selling at high prices (resistance).
• 🛠️ Indicators like pivot points can automatically plot support and resistance levels, simplifying the process of identifying key price zones.

Q & A

What is the basic definition of support and resistance in trading?

Support refers to the price level where buyers are willing to purchase an asset, while resistance is where sellers are likely to sell. These zones reflect where the price may stop falling (support) or stop rising (resistance).

Why is support considered a 'zone' rather than a specific price point?

Support is considered a zone because it's not just a single price, but a range where buyers are generally interested in purchasing. The price may fluctuate within this zone before buyers step in and push the price up.

What happens when the price breaks through a resistance level?

When the price breaks through a resistance level, it indicates that the sellers have become weaker and buyers have taken control. The price may then move up to the next resistance level, showing a continuation of the bullish trend.

How does human psychology play a role in support and resistance?

Human psychology affects trading behavior. Buyers tend to buy at lower prices (support), while sellers look to sell at higher prices (resistance). If the price falls, buyers become more interested, and if the price rises, sellers start selling to lock in profits.

What is the significance of 'last swing' when plotting support and resistance?

The 'last swing' refers to the point where the price made a notable change in direction, either upward or downward. It is an important reference point for identifying potential support and resistance zones.

How can traders manually plot support and resistance zones on a chart?

Traders can manually plot support and resistance by identifying significant swings in price movements and drawing horizontal lines or rectangles at these levels. The areas where the price consistently reverses or pauses mark key support and resistance zones.

What tool does the speaker recommend for automatically plotting support and resistance levels?

The speaker recommends using the 'Pivot Point Standard' indicator to automatically plot support and resistance levels based on previous price data, making it easier for traders to identify key zones.

How do pivot points differ from other indicators in identifying support and resistance?

Pivot points are based on quantitative data, particularly the price action from previous trading days. Unlike other indicators that follow the current price, pivot points use historical data to pre-calculate potential support and resistance levels.

What is the role of supply and demand in determining support and resistance levels?

Support forms when demand increases, meaning more buyers are willing to purchase at a lower price. Resistance forms when supply increases, meaning more sellers are willing to sell at a higher price. This supply-demand dynamic causes prices to either rise or fall.

How can traders use support and resistance levels to set stop-loss orders?

Traders can set stop-loss orders just below support levels if they are buying and just above resistance levels if they are selling. This helps them minimize losses by automatically exiting a trade if the price moves against their expectations.