Support and resistance levels are the most popular technical analysis tool on the Olymp Trade platform.
I’m even willing to bet that you can’t find a trader who doesn’t use SR levels to trade.
Because unlike other technical tools, they almost certainly work. And, they are simple to draw and easy to use to interpret the market.
But what exactly are support and resistance levels and how do you draw them on Olymp Trade?
That’s exactly what we will use this post to discuss.
Beginning with: –
What are Support and Resistance Levels?
These are psychological barriers that prices encounter as they trend. I say psychological because they actually don’t ‘exist’… Only in the minds of the traders.
Let me explain.
Since no one trader can ‘see’ the future and know where the price is going, what traders do is look back at price data and make predetermined conclusions. Sometimes linning with the logic that if prices reach level “X”, they will reverse in the opposite direction.
Based on these predetermined assumptions, traders will set horizontal or even trend lines on the charts and call them support and resistance lines.
This is achieved by connecting at least two price highs on one line, to find a resistance level. And connecting at least two lowest lows to make a support line.
Now, for the sake of future trading, and relying on past data, traders conclude that prices will find resistance at the set levels. And true to their word, it sometimes does.
A resistance level shows you the highest price achieved by an asset during a specific period. The period could be 30-minutes. And to get the level, you have to join at least two price highs during this period.
On the flip side, support level is a horizontal line or a downward trend line, showing the lowest prices achieved by an asset after a specified period. If it’s the same 30-minutes, join at least two lowest points.
How to draw resistance and support lines on Olymp Trade.
To draw support and resistance levels on Olymp Trade, locate the compass icon as shown below. Then scroll down until you find Drawing tools then select the horizontal line. Click on the point you want to start drawing from to the point you want to finish drawing at.
That’s the easiest way of drawing SR lines.
Once you have selected the Horizontal line option, a pink dotted line will appear on your trading chart.
The next step is to actually position the line on the right spot.
For the resistance line, locate any two highs (peaks? And any two lows (troughs) for support level. Once found, click and the line will stick.
And since you are drawing two lines, it is better if you change the colors for better visibility.
Look at the screenshot below.
The pink line is the resistance level, while the purple line is the support level.
And that is how you draw support and resistance levels on Olymp Trade.
Moving on, before I show you how to trade using the lines you just drew, there are some things you should know about SR levels.
Always remember these points when trading support and resistance levels on Olymp Trade.
- The lines don’t have to be horizontal always. You can draw SR lines during an uptrend or a downtrend.
- When locating the price points, they don’t have to be at the exact same level, as long as they are at the same price range, you are good to go.
- Support and resistance levels are said to be stronger when they connect more than two price points. Conversely, it is considered weak when the price action keeps breaking the levels, hence making it hard to predict the market
- When the support and resistance levels are broken, new ones are created. This means that the former resistance level becomes the new support level when the former is broken and the opposite is true.
How to trade on Olymp Trade using support and resistance levels.
Trading SR levels come down to the assumption that the price tends to reverse when it reaches these levels.
As such, you should be ready to open a trading position once you have identified support and resistance levels.
Open a buy position – when the prices touch the support level. This can be a long or short trade. It is entirely up to you
Open a sell position – when the prices enter the resistance level.
Isn’t that easy?
What are you waiting for?
Open a demo account and practice this technique now.