Profit taking is done when a trader feels that the current price level is too high , so they tend to end long positions . This then causes the price to fall after reaching a certain high level. This is called as resistance. On the other hand, the Take Profit action also occurs when a trader feels that the current price level is too low , so they end their short position . The price was corrected up and triggered a support point.
It seems that the price is very difficult to rise through the point 1358.88 and continue the upward movement from that level. This point is called resistance. Its function is like a roof that prevents a price from moving up through it . In other words, resistance is a point that acts as an "upper limit" of a price movement. As long as this resistance point is valid, traders can make it as a benchmark for sell entries.
On the other hand, there is also what is referred to as a support point. This support point is like a floor that prevents prices from going down through it . This area is created when a price stops decreasing, then reverses. In short, support is the lower limit that prevents the price from continuing to weaken. Below is an example of a support point for XAU / USD in Daily Time Frame . It seems that the price is hard to break the lower limit of 1310.31. As long as the support point is still valid, this level can be a moment for traders to make buy entries.
Need careful observation in determining the levels of support and resistance on the trading platform. Usually it takes minutes, even hours to understand support and resistance, because the level can change at any time . Mapping support and resistance on a trading chart is usually applied by technicalists, before they start their analysis with certain indicators. Here's how to use support and resistance on the trading platform:
1. Create a Trendline
As explained above, support and resistance are constant in preventing prices from moving higher or lower. But for the long term, prices will definitely move up or down in accordance with the trend that happened at that time . For traders following trend following strategies , the High and Low points that form price trends are often also positioned as support and resistance. When unfurled trendline ( trend line ), then the points High on the downtrend will be resistance, while the dots on the line Low uptrend can also function as a support. For an example we can see as follows:
2. Identifying Double Zero (Psychological Level)
By understanding support and resistance, we will also be able to identify Double Zero. What is Double Zero? Basically, Double Zero is a price level that has a round number (two zeros) at the end, and is often referred to as a psychological level . Examples of these integer levels are 1300, 1400, 1500, 1600, and so on. Trading experts who observe price movements in the long run often conclude that real prices tend to reverse when reaching a certain round level. This is likely due to market psychology which generally considers prices to have reached a saturation point when it reaches Double Zero. In addition, this round number is believed to be a strong level at which large banks also set their targets. Examples of the appearance of Double Zero as resistance can we observe through the GBP / USD chart below:
3. Apply Fibonacci Retracement
Fibonacci retracement has a significant role in monitoring and understanding support and resistance. Usually, this tool is juxtaposed with technical indicators as a complement to the trading system. No wonder Fibonacci retracement is a favorite indicator that traders often use. How to draw a Fibonacci retracement line can be done by looking at the distance of the last few candles , for example the last 60 candles. That is, we only need to identify which are the highest and lowest levels of the last 60 candles that line the right side of the graph. The results we can see through the following picture:
From the Fibonacci retracement levels above, it can be seen that in a downtrend the price experiences several retractions that are stopped at the 0.5 and 0.382 levels. The range 0.382 was even tested twice, before the price then weakened again to the Fibonacci Retracement 0 level. From here, the 0.382 level could be a strong resistance reference when the price bounced from level 0.
CLOSING
From the description above, we can get many pictures of support and resistance; starting from the area of price reversal as an entry and exit point position, to the psychology of the market which is reflected by a certain Double Zero.
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