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Support and Resistance levels

Support/ Resistance Zones (S/R)

What is Support and Resistance

In general these price chart levels below are considered most often as Support or Resistance levels.

However, as the market manipulators push market price to trigger stop runs and initiate faked breakout signals at these mainstream levels a trader should not use these levels blindly as support and resistance levels (S/R levels).

Moreover, a trader should analyse price action around these chart levels to anticipate or watch for stop runs to position in accordance with the smart "manipulating" money. Read the market price manipulation series to understand the price rigging process.

Some Mainstream Support and Resistance levels, which often get misused by the Manipulators:

So the only true Support and Resistance levels can be found in analyzing the intention of the market manipulators and to trade in the direction of it, mainly after initiated stop runs or faked mainstream trading signals.

Typical (manipulated) Price Patterns at Support and Resistance levels

Very often, particularly on larger time frames and strong Support/ Resistance levels, market price tends to close at important S/R levels/ zones (Weekly, Daily, 4-hour, hourly candles). During a larger consolidation pattern market price often gravitates around these Support/ Resistance zones until the termination of the consolidation pattern.

However, market also often gravitates at least shortly around Support and Resistance in a trend or market turn around to trigger the stop and limit orders, because popular S/R levels are used for entry/ exit strategies by the mainstream trader. Thus, these striking levels are used to position/ re-position or change the trading position by the mainstream traders.

The frequent  penetration of these popular Support and Resistance levels will catch these stop and limit orders by the market manipulators before the major trend or the change in market direction occurs. This manipulative pattern/ Stop Running is visible on important chart price levels.

When does Support/ Resistance break?

Support and Resistance levels often get weaken when market approaches these S/R levels again after a relative short period of time meaning that the recent bounce of the Support/ Resistance zone lost strength early or when market started to consolidate around this level in a shape of a Continuation Chart Pattern. In both cases market is unable to significantly bounce from the Support/ Resistance level.

In general, the more often a Support/ Resistance level is tested in a relatively short time the weaker it gets. Furthermore, Support/ Resistance levels also get weaken when market closes at these S/R levels on a lager time frame. However, Breakout Confirmation/ Price Rejection is important to keep in mind when analyzing Support and Resistance. A strong price rejection after the temporary break of a Support/ Resistance zone reemphasizes the strength of this S/R level.

Very often Support and Resistance levels get beached/ broken for a true or false breakout (Stop Running) with the new time frame candle when the previous bearish/ bullish candle closed at Support/ Resistance (see Breakout Trading/ Breakout Timing Strategy).

The General Price Retest of broken Support and Resistance chart levels vs the rare Clean Break

When Support/ Resistance levels get broken, market often retests the broken S/R level for confirmation of the price breakout. Thus, the Support/ Resistance zone might often change its role depending on price action (true price breakouts) from support to resistance or resistance to support. However, the retest of the Support or Resistance level after a price breakout aims to catch the stop loss orders of some breakout traders. You rarely see a break of a striking level without an immediate price retest of the S/R level.

The retest of the Support or Resistance level often occurs immediately during the time duration of the breakout candle or just some candle wicks later. A clean price breakout through a S/R level without immediate retesting rarely happens. If a "clean break" without any immediate price retest occurs, e.g. after a News Release, then the chance of a retest of the broken Support or Resistance level in recent time is very likely.

The fact that clean breakouts rarely happen particularly without any immediate retests of the broken S/R level or in recent time explains why breakout traders with a small stop loss are often facing some difficulties in trading forex. Breakout traders are often caught in bad setups as market price often changes market direction after the slight penetration of an important S/R chart level. The often observed false (first) breakouts are part of the forex market price manipulation -Stop runs-, which is explained below and further on the page Market Price Manipulation in Forex | EUR/USD.

Price Breakout Confirmation on different time frames | Changing role of Support and Resistance

The confirmation of a price breakout at an important S/R level and hence the changing of the role of the Support/ Resistance level also depends on the time frame. The price breakout through an important Support/ Resistance level on a higher time frame gets confirmed on the 5 min chart first, then on the 1 hour chart, 4 hour chart and so on, meaning that the role of the S/R level on the 5 min chart might have already changed due to the confirmation of the price breakout on this time frame but the confirmation of the price breakout and the changing role of the key S/R level on larger time frames like 1 hour, 4 hour, daily chart has to be awaited.

Thus, the role of a Support/ Resistance level can be different (confirmed/ non confirmed) on different time frames so that the confirmation of a breakout on smaller time frames of an important level should not always be regarded as a general break of this S/R level (time frame dependent). That is why a confirmed breakout on the 5 min chart can easily be rejected on the 1 hour chart or a break of the key level on the 1 hour chart can easily be rejected on the daily chart. Following this, the candle close on different, particularly higher time frames are important for the analysis of the Support and Resistance level.

Stop Running | False Price Breakouts

The positioning of stop loss orders (stops) above/ below market swing Highs/ Lows or striking levels is easy to anticipate and market often tends to clear these stop orders. Very often these price levels get penetrated and the stop/ limit orders get triggered but market often reverses immediately (unconfirmed false price breakouts - only Stop Running), particularly at the first test of the price level. Stop Running is an important driving force in Forex Trading!

A support/ resistance zone under/ above a recent low/ high often leads to a strong bounce as most of the breakout traders are caught in the wrong position and stops below the recent low/ above the recent high also got cleared.

Market often finds some temporary Support/ Resistance after clearing the stops under a recent low/ above a recent high, particularly in not strongly trending markets or consolidations (time frame dependent). See also Breakout Trading/ Breakout Timing and Unconfirmed Breakout | False Price Breakouts to understand Price Rejection.

Check out DayTradingForexLive on youtube to understand Stop Running and Manipulation in Forex and Max Keiser Report on youtube for another view on the Financial world.

A good read about forex price manipulation is Forex Bank Trading Strategies

Stop Runs/ Stop Hunting more in detail 

A very important aspect in (Day and Swing) Trading Forex is that market price is most often pushed (e.g. at News Release) to slightly penetrated or break Support / Resistance levels, where stops are anticipated, to clear these stop loss orders and often reversing after the Stop Running got completed to target the opposite S/R zone where stop loss orders are anticipated (e.g. stops of the fooled breakout traders). The Forex market price manipulation aims to catch the stops of most of the FX traders and also to fool breakout traders at Support and Resistance or striking levels e.g. highs/ lows.

The Clearing of the stop loss and the limit market orders of the breakout traders allows the Forex Market Manipulators to position directly against the mainstream traders. This may explain why most of the traders and mainstream trading strategies fail and will continue to fail in the future.

I would argue that Stop Running/ Market Price Manipulation should be understood by Forex traders and that it should play an important part in a trader´s FX trading strategy to successfully trade the Forex market, particularly in the Forex Majors like the EUR/USD. GBP/USD and also the EUR/GBP

Read further at http://forex-chartanalysis.blogspot.com/p/price-manipulation-in-forex-market-is.html

Consolidation patterns

Consolidation patterns often take at least the same time as the last related impulsive swing. Most often consolidations occur at some support/ resistance levels. A typical consolidation often consists of three swings and mostly market renews its underlying trend after the consolidation has terminated (see chart below from the EUR/USD Market Update 18.05.12: Typical Consolidation Pattern).

typical consolidation pattern
Typical Consolidation Chart Pattern

Very often these consolidation price zones (below) also provide some support/ resistance when price retraces back into these price zones, particularly during the first retest (orange arrows).

typical consolidation pattern
Typical Consolidation

Information about
Triangle Consolidation Pattern here. 

Consolidation Price Zone

Consolidation Price Zones (particularly the middle of these price zones) very often provide some support/ resistance when market reaches these price zones again particularly for at the first retest (however, if one strong candle closes in the zone (respecting of the level) then the next might move through the consolidation price zone without a bounce (strong trend)).

This price behavior is visible in most of the circled consolidations on the 5 min chart (below) for example the Euro found support at around 10 a.m. GMT, which is likely to be a consequence of the consolidation price zone at around 4 p.m. the day before. Similarly, the consolidation in the late US session on the day before is likely to be the reason for the support at this market price level on the next day. The small consolidation at about 1.2460 at the monthly support of March 2009 might not be a good example for the respecting of the consolidation price zone due to the Breakout Timing setup at 4.p.m. as well as the strong tendency of the market to clear stops at important highs/ lows).

Consolidation price zones
Consolidation Price Zones

Another example of Support and Resistance due to a Consolidation price zone:

The price zone of the blue marked/ circled consolidations often provided support/ resistance when market price  reached this price zone again for the first time after the consolidation patterns terminated.

Have a look at the price zone of the consolidations and the succeeding price action at these price zones.

Consolidation price zone
Consolidation Price Zone

Consolidation Price zone | Pivot Points
Consolidation Price Zones

Simple Moving Average (SMA's)

  • trend following
  • might be useful if SMA is rising/ falling (prevailing trend)
  • trend is time frame dependent

Might be useful on all major time frames (1 min/ 5 min/ 1 hour/ 4 hour/ daily / weekly/ monthly) but also tricky for a trader to employ as it is a clear mainstream setup and market manipulators often go against it, similar to other mainstream chart trading pattern. Again, it often depends on the intention of the manipulator (how positioned and where are the mainstream stops). The more obvious a Moving Average setup (e.g. after a strong surge in momentum after a News Release or the second/ third testing of the SMA) the trickier is it often to successfully employ this trading strategy because market manipulators might position themselves against it. Hence, the opposite trading strategy, the strategy to go for a break of the SMA might be also considered in specific trading environments.

Often the Simple Moving Average is slightly breached but the break is not confirmed. Further, if a bullish/ bearish candle closes straight at the decreasing/ increasing SMA then the chance of a breach/ break of the SMA increases (Breakout Timing setup).

Price might often react on these rising/ falling Moving Average -trend resumption-
(keep an eye on the Breakout Timing setup - close at SMA could be a sign of a break).
If price bounced from the Simple Moving Average and the trend resumption already turned around at a minor S/R level or only reaches the next 61.80 % fib extension or less on the same time frame and/ or only clears the stops of the next S/R level then the SMA Support/ Resistance might be in question and a break of it can easily occur.

  • 200- SMA: long-term trend
  • 20  - SMA: medium term trend
  • 10  - SMA: short term trend (market reacts on it in a strong trend)

When price makes a trend change or starts a larger consolidation these SMA get tested and broken from lower  to higher SMA'S (10,20,200)

In general it has to be said that the SMA Strategy should be regarded as a tricky trading setup due to its popularity because it becomes tempting for the Forex Price Manipulators to go against this mainstream trading strategy.

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