Truth #1 – The more times R/S levels tested, the stronger it gets
Resistance and Support levels act as barrier.
Support when tested, buyer orders get filled in the process and after support has been tested buyer get success in exerting pressure of bullish trend and that picks up upward trend for a while.
Resistance when tested selling orders are filled in the process, after the resistance has been tested, sellers get success in exerting bearish pressure as a result it picks up down trend for a while.
The more these levels are tested, they get WEAKER every time.
Truth #2 – Never use exact R/S levels for entry or stop loss
Never begin any trade entry exactly at R/S level nor use stop loss at R/S levels (institutions hunt and trigger stop losses at R/S levels).
Always place order around R/S after 2 OR 3 price ticks over the R/S levels, which will be next short term direction established after confirmation passed R/S levels.
Truth #3 – Resistance & Support level broken with increased volumes
If a resistance or support level is broken with increments in volume, the trend becomes more valid, and during such time breakout or breakdown may occur if volume has increased at breaking such levels, it is high time to make trading profits at such time.
Truth #4 – Using Resistance and Support at Range Trading
During the time of Range trading you will notice price reaching a support or resistance level and then reversing.
A range market is contained between support and resistance.
In a range market, I make a buy position;
1. When a key level of lower support is not broken in correlation to market index. Place a stop just below the support.
In a range market I make sell position;
2. When a key level of upper resistance is not broken in correlation to market index. Place a stop just above the resistance.
P.S: To enter into a trade I always ensure that the range is moving at least 3 points or more, otherwise trading during a much narrower range is not worth while.
Truth #5 – Resistance and Support is more relevant with current time
Resistance and Support levels recently created are more important and relevant then the distant past.The more recently a support or resistance level has been established the more important and relevant it become.
Support or Resistance level if had not been tested over a long time will become less important with the time.