Day Trading for Dummies – Support and Resistance?

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Day Trading For Dummies – Support and Resistance?
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In this video I’m going to cover a topic that I am getting a bunch of questions on. It is one of the basic topics that every new trader needs to learn about. To some this might be a dumb question, but the in the day trading for dummies series it isn’t!

So what exactly is resistance?

A resistance level in trading is a price area where price tends to use as resistance as it is going up. In layman’s terms it is an area in price where price tends to use as a ceiling when going down.

Think of the ceiling in most homes. It holds as resistance to all of the outside world’s surprises. Think of bird s$%#, rain, snow, hail, and insects not being able to come into your house because of this resistance level. If it wasn’t there then all these things would have access to your house.

So, why is resistance so important? (Again in the day trading for dummies series this isn’t a dumb question)

The reason that it is considered very important by most traders is that price is likely to bounce off this area of resistance rather than break through it. However, once it does breakthrough the area than it is likely to continue going until it finds another area of resistance.

Let’s go ahead and look at some resistance areas in real time. And let’s discuss a few other important things about these areas.

1. It isn’t exactly one price point. Think of it as an entire area.

2. Not all resistance areas are created equally. Some are typically stronger than others. And you shouldn’t treat them as if they were equal.

3. Resistance can also be diagonal. This is better known as trend lines. Some traders swear by these. I personally use these as well, but not as much as some traders do.

How to tell:

Understand that this is the way that I personally gauge resistance in my own personal system. Other traders might not agree with how I do things, but that’s the beauty of trading. You can tailor your system to however you like to do things. After you’ve done this the only thing that you have to worry about is executing that system consistently over time.

I consider an area of resistance strong not by the number of times price has bounced off but by the number of times it changes direction of the market. When resistance does this that means it’s very strong. Think about it. If it doesn’t change direction of the market then it’s not as strong as an area that does.

Again remember that this is something that works for me in my system but might not necessarily work for you. So, use it at your discretion.

Finally I wanted to cover other areas of resistance which include Fibonacci extensions. Fibonacci extensions are used by many traders to help them see the different areas that the market could run to. They are beyond the scope of this video but if you wanted to learn more about them than I suggest you Google them to find more information. Thanks for listening to the day trading for dummies what is resistance video. If you haven’t seen the support one it’s on this playlist.