1. Find a trading range which exists in the context of a trend. Think in terms of areas
instead of levels
The mention of
support and
resistance may have you thinking of a linear,
horizontal level, but that is far from how professional traders view it. In
reality, smart market participants accumulate positions around certain price
levels—we refer to this as the area. This perspective of support and
resistance translates to a more sophisticated view of the market, allowing
one to transcend the imaginary boundaries set by horizontal levels.
In a free floating market which has no directional (trending) component, the
trading range can be very volatile, with unexpectedly big moves. Conversely,
if there was a trending component, odds are the volatility of correctional
moves would be limited, and traders might do a better job identifying
support/resistance areas.
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2. Don’t expect a rapid market reversal the moment it enters support/resistance area. The market does not go in your preferred direction just because it enters
your support/resistance area. Similarly, it can also stay within the area for
several days. That is market logic.
Institutional traders who are responsible for supporting the market
accumulate a position over time and tend to keep a position for a while
before they see positive results—that is if the market goes in their
preferred direction.
In the example below, Gold (XAUUSD) was climbing with a notable trending
component (ascending trend), resulting in a relatively narrow support area
that allows traders to use as a trade location to build positions with limited
risks.
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