Support and resistance system should only be used in a higher timeframe chart, like one hour and above. This is necessary because at such a higher time frame, brokers cannot manipulate the price to my disadvantage. Also, it gives me a humble time to sit down and analyze the market without stress and worry of time.
How I draw strong support and Resistance
Before I call a level strong, the same level must met the following conditions.
Again, when drawing my support and resistance levels, I use a range, not a single line, this is because price tends to test particular level before retrieving, range caters for these levels.
Note: Also, if the levels I draw conform to my Fibonacci levels, it is highly likely that those levels are strong and could be of interest in the future.
This strategy mainly involves trading divergences, hidden divergence and convergence. This, I use an indicator called Stochastic Oscillator and Fibonacci. I use the standard settings which are %K period: 5, %D period: 3, Slowing: 3, Price field: Law/High and a Simple Moving Average. The strategy revolves around observing what the price and the indicator are doing. That is, if the price is doing something opposite to what the stochastic is doing, it means price is going to change direction. In this case, I will refer to these scenarios as opposite (divergences, hidden divergence and convergence).
I start by marking the previous lowest low (Support), or highest high (resistance) of the price on the chart with a horizontal line; I also mark the lowest low on the indicator at the exact time, and then wait for price to approach these levels. In an event that the price is moving almost on the line I drew previous, while the indicator is nowhere close to the line I drew on it, then probably, there is an opposite scenario (Price may change direction). I have to look for confirmations.Confirmations:
How do I confirm that the price will highly likely change direction? Well, the same level I drew previously must be a strong level, that is, it must meet the above conditions. Once the conditions are met, I confirm the same level on a higher time frame charts. That is, if I was trading on a 1h chart, I quickly switch to the 4h, daily and even monthly chart to see if the same level has been of significance to those higher time frames in the past. If the same level has held the market at higher timeframes, then price will highly like change direction from that level. I then switch to the 1h chart and initiate a trade, either sell or buy depending on the direction I expect the reversal to follow.Note:
While this is a technical system, change of direction of price are sometimes affected by news releases. Therefore, before initiating a trade at a particular level, one should consider the possible impact of the economic data to the price when fundamental data is released. This is even more interesting if the price reaches your level just at the time news is about to be released.
This strategy is applicable only when there is an opposite scenario, meaning the trader has to wait for the conditions to be met, before initiating a trade.
Other than using the Stochastic Oscillator, I also use the following indictors depending on which one gives me a clear information, MACD and Relative Strength index.
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