Support & Resistance

Transcription

1 Support & Resistance Lesson 1.7 Created by Sebastian Kunysz

2 DISCLOSURE THIS VIDEO IS FOR DEMONSTRATION PURPOSES ONLY CombinePrepSchool.com provides this material for information and educational purposes only and only should in no way be construed as investment recommendations. CombinePrepSchool.com does not make recommendations in any securities and does not provide financial, tax or legal advice. Please keep in mind that risk of loss in electronic trading can be substantial. Therefore, you should carefully consider whether such trading is suitable for you in light of circumstances and financial resources. 2017, Combine PrepSchool All rights reserved. CombinePrepSchool.com No part of this book may be used or reproduced in any manner whatsoever without written permission. For information contact Combine PrepSchool 3571 Far West Blvd. #50, Austin, TX USA Cover design by Jaz Escamilla Transcription by Shirain Conlin 2

3 LESSON 1.7 UNDERSTANDING SUPPORT & RESISTANCE Welcome to the final video in part 1 of this course, the basics of support and resistance. The purpose of this video is to explore one of the most important concepts in trading. Let s define SUPPORT and RESISTANCE in its most simple and basic forms. Support would be a high willingness to buy at a certain price. resistance would be a high willingness to sell at a certain price. In a moment we are going to roll over to a price chart. I want to show you how price reacts at certain levels of support and resistance. I also want to add something else that I feel will help you greatly in the future and this is time and sales or the TAPE the time in sales or Tape allows us to observe the flow of orders from large traders and small traders going off in the market, in real time. This gives us valuable information and allows us to observe exactly how traders are behaving at certain levels of support and resistance and allows us to make better trading decisions. Ok, so we just rolled over to a price chart. There is something I would like to mention first. 3

4 That is our lines of support and resistance, right here and right here. I am using our custom Floor Trader Number to generate these lines. You will have access to this indicator and all of our other indicators in part three of this course. I ve also made an extremely detailed video about this indicator, it should give you everything you need to know about it and how to use it effectively but for now let s just focus on the basics of support and resistance. Ok, let s move forward. The first thing you need to understand is that there are essentially two forces in the market, the BULLS and the BEARS. If you are buying or going long, then you are a Bull, if you are selling or going short then you are a Bear. It is the battle between these bulls and bears and the consumption of buy and sell orders or liquidity, at every tick level, that moves the market. It s important to note that support or resistance is not always an exact price, sometimes it is an area. We have a perfect example right over here. 4

5 The price went on the Bull, then it bounced around our area of resistance before being driven back down and then we experienced a short little battle and then the bulls took over and we experienced a trend. Before we go further, there is a simple rule in support and resistance that we need to understand. When a line of support becomes penetrated that line becomes resistance or when a line of resistance is penetrated, that line becomes SUPPORT we can see that illustration right here. Price broke through our line with some force and then retested that line to the tick, and then continued as upward trend, that line is no longer resistance but support. Now, the reason that line, in the first place, was resistance is because price was simply trading below it. Now price has penetrated it, retested it and continued moving up. So that line is now support. Remember, this rule is valid for either support or resistance. So, when a line is penetrated, it simply becomes the opposite of what it was before it was penetrated. If anything we ve gone over doesn t make sense, I am going to reassure you not to worry. Trading is not something you can read about or watch about and completely learn. You need to have the practical 5

6 application for it to truly sink in and that is what we will be doing in the next section of this course. So, let s move forward. The Bulls have taken over and we are in an uptrend, how do we define a TREND? An uptrend is simply just a series of higher highs and higher lows. A Bear trend is just a series of lower highs and lower lows. Uptrends and downtrends don t always look perfect and sometimes they do, we also have something called a SIDEWAYS TREND and they may look something like or a variation to this. I am going to bring your attention to the green box, here we have a sideways trend. Sometimes this is referred to as a period of CONSOLIDATION or indecision the sideways trend ends, when the line penetrates either to the upside or the downside and breaking the area of support or resistance containing it. In part two of this course, we are going trend hunting and it will be your homework to identify uptrends, downtrends 6

7 and sideways trends. I will demonstrate it first,but you will have plenty of time for all of this information to sink in. Now it s time to change the channel and take a look at the Bulls and the Bears in action. The first thing I would like you to pay attention to is the longer Tape. In the first column we see the time a trade was placed at, in the second column, we see the price a trade was place at; in the third column, we see the number of contracts executed in that trade. Text in green are the Bulls, text in blue are the Bears. In the third column you see 10 or more contracts. In the second tape you will see it moves much faster, that is because I have set a filter on it between one to 10 contracts. Sometimes levels of support and resistance hold very strongly and sometimes even to the tick. Other times, they don t work at all. That is precisely the reason why I am introducing you to the tape from the very start. I want to start you off properly, I don t want you just relying on indicators and simple price structure. I want you to understand that it is the flow of orders, buy limit orders, sell limit orders, market orders that move the market. The objective is to learn how to get on the right side of the flow, on 7

8 the right side of the market. The tape, in conjunction with your indicators and price structure, (which we will be learning) will help you do all of these things and not just do them but do them, wonderfully. Ok, let s move forward. Price is breaking through our level of resistance and we can see a whole bunch of bulls have just come into the market. From this point forward, in this trend that is forming, the Bulls will overwhelm the Bears and we will be able to see this because we have a lot more green on our tape than blue and price so far is confirming what we are seeing. I am going to speed up this recording, just to save some time in this lesson and keep your eye on the price action and the tape. The objective here is just to see and get a feeling for the rhythm and flow of the market. Alright, I hope you can see how valuable it is to not just look at the price chart but also the tape and if you don t see it yet that s perfectly ok; get ready for part 2 of this course. We are getting into the practical aspects of trading. The next session is exercised based, we will be building upon and using everything we learned in part one. By now you should understand What a futures contract actually is, and how it came to be. You should understand what you need to start trading The Tools of The Trade You should also now be comfortable with setting up a chart We learned and gained an understanding of what a chart actually is What it means to go long, what it means to go short and how to place orders How traders make money in the market, how traders lose money in the market and Finally, in this video, the basics of support and resistance. Trend and market movement. My name is Sebastian Kunysz and I will see you in part two of this course. Bye for now. 8

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