XPro Markets - How to Trade Support and Resistance

XPro Markets - How to Trade Support and Resistance

Are you looking for ways to take your technical analysis skills to the next level? CFD trading is all about knowing how to read charts and how to use them to your advantage when deciding on your next trading move.

As the global markets are full of unexpected highs and lows, to be able to navigate your way through the volatility it’s also important to be aware of all the technical terms that can help you boost your trading strategies. One of the most widely used concepts you will encounter through online trading is ‘Support and Resistance’. Keep reading to see how support and resistance can be used in chart analysis.

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What is Support and Resistance

An excess of supply over demand causes prices to fall in a downtrend. In general, the lower the prices go, the more attractive the price becomes for those waiting to buy. Eventually, the demand that has been gradually increasing will match the supply and prices will stop falling. In technical terms, this is called support, which could be a price level or a price zone on the chart. In other words, support indicates the willingness of buyers to buy on a price chart. This is when demand overwhelms supply, halting the price decline and reversing it.

On the other hand, resistance indicates that prices have stopped rising. There are a variety of reasons why this happens. Traders may feel that prices are too high or they have reached their target, or buyers may be reluctant to initiate long positions at such high valuations. Having the ability to read price charts means being able to recognize when supply begins to overwhelm demand, signalling resistance.

If a price zone or area of support or resistance is identified, those levels may serve as entry or exit points for a trade. When the price reaches a previous support or resistance level, it can either bounce back away from the level of support or resistance, or it can violate the level and continue in its prior direction until another support or resistance level is reached.

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Trendlines

Trendlines are horizontal or angled lines that highlight support and resistance. A horizontal line is drawn to indicate that the market is struggling to move past the same price area when the price stalls and reverses twice in succession at that price.

A downtrend is characterized by lower lows and lower highs, while an uptrend is characterized by higher highs. Chart a trend by connecting its highs and lows. Extend that line to the right to see where future support and resistance might be found.

In this way, trendlines provide traders with a view of how the market is currently moving and how prices may change in the future.

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Your Trading Strategy

When entering a trade, it’s essential to always have a target price in mind for a profitable exit. Generally, when trading support and resistance, traders tend to buy near support in uptrends and to sell near resistance in downtrends.

Whatever your next move may be, keep in mind that the support or resistance is not guaranteed to hold. Therefore, consider waiting for some confirmation that the markets are still moving towards that direction. At the same time, be sure to have your risk management strategies at the centre of your trading plan in case anything goes sideways.

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Are you ready to put your knowledge to the test? Log in to your XPro Markets account to explore the markets!

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Risk Warning: Contracts for Difference (‘CFDs’) are complex financial products, with speculative character, the trading of which involves significant risks of loss of capital.

Disclaimer: This material is considered a marketing communication and does not contain, and should not be construed as containing investing advice or a recommendation, or an offer of or solicitation for any transactions in financial instruments or a guarantee or a prediction of future performance. Past performance is not a guarantee of or prediction of future performance.