Support and resistance barriers

In the previous articles, you got acquainted with concepts such as price trend identification in technical analysis, movement along the trend, support and resistance levels and how to combine these levels with movement along the trend. Using these concepts, you were able to identify the best entry points for trades.

It is interesting to know that many concepts of technical analysis, such as Elliott waves, are derived from nature. In the 1940s, Ralph Nelson Elliott, by studying the Dow Jones Industrial Average and inspired by nature, discovered regular patterns in seemingly erratic price behavior, which led to the discovery of principles that he considered to be the keys to price behavior.

Now, using these principles, we are going to introduce a technique called support and resistance barriers so that you can look deeper into price movements and identify more suitable entry points. For more information, we suggest you read the technical analysis training article.

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Think of price movements as rushing waves of water that bounce back and forth as they hit the surfaces around them and continue to move along the course of a river until the force of the current and its accumulation behind the dam is too great. to be able to break the barrier and continue moving in a new direction. The path that paves the way for the future trend of water waves.

In the chart below belonging to the auto symbol on the weekly time frame, notice how the price is relative to the support levels

And resistance (which acts as a barrier against price movements) reacts. The barriers of support and resistance formed one after the other and finally, after the saturation of the supply or demand of the share, are broken.

In the chart below belonging to the Arfa symbol in the daily time frame, you can see that after forming a support level, we see the breaking of the resistance barrier by the price. Therefore, after receiving the warning from these two levels, you can enter the purchase transaction without waiting for the formation of the bullish abc and receiving confirmation.

The remarkable thing about this method is that although the risk of this method is higher than the previous methods, but in most cases, it shows the range of entry to the transaction to the traders earlier. Therefore, the use of this method depends on the level of risk taking of people.

◊  Also read this article: Basic analysis training from zero to hundred

In the chart below belonging to the steel symbol in the daily time frame, you can see that after breaking the specified dynamic and static support barrier, we entered a sell trade without waiting for the formation of bearish ABC and confirmation by the short-term correction failure. Because the failure of two support barriers is a warning and a confirmation to make a sale transaction.

In the chart below belonging to the Highweb symbol in the daily time frame, you can see that after the formation of a support level and then, the breaking of the first resistance barrier, it is possible to enter into a purchase transaction. It should be noted that the lower the slope of the lines used for analysis (here the resistance barrier), the less risk there is to enter the transaction. Therefore, entering the purchase transaction after breaking the second resistance barrier, which has a lower slope, is considered a low-risk entry.

In the chart below belonging to the Zob symbol in the daily time frame, after the break of barriers 1, 2, 3 or after the formation of ascending abc and the break of resistance barrier 4, you can find suitable ranges for entering into a purchase transaction, but what should be considered, That is, which range is the most suitable? Entering into a purchase transaction after breaking resistance barrier 1, which has a steeper slope than resistance barriers 2 and 3, is more risky; But it offers us a lower price to enter the purchase transaction and, as a result, a higher yield after the trend continues in the upward direction.

But the entry after the formation of ascending abc and the breaking of the resistance barrier formed after the short-term downward correction is the trade that offers the safest but least profitable entry to traders. Therefore, choosing the entry range from among these 4 options depends on the level of risk tolerance of people. Our suggestion is to enter a low-yield but safe transaction or a step entry.

◊  Also read this article: Free stock market training from zero to one hundred

In the chart below belonging to the Ranfor symbol in the daily time frame, you can see that after the price returns from the resistance levels and the support barrier is broken, we have entered into a sell transaction.

In the chart below belonging to the car symbol in the daily time frame, we have specified the buying and selling ranges after the reaction to the resistance and support levels and also the failure of the support and resistance barriers. You can see that sometimes by choosing support and resistance barriers with a lower slope, you can choose less risky ranges with lower returns to enter the transaction.

It is worth noting that in this method to reduce the risk, we can wait for a confirmation in that direction after the failure, so that we enter into the transaction after the failure of the support or resistance level formed after a correction.

In the chart below belonging to the symbol of numbers in the weekly time frame, you can see that after the formation of static and dynamic support levels and the price reaction to the static support level as TST and the dynamic support level as BOF and the breaking of the resistance barrier at the BO point, you can entered into a purchase transaction.