Automatic support and resistance
We all know that drawing support and resistance levels is a pain. If someone likes to sit at the chart for a long time, he has to regularly correct the previously drawn levels. However, there is one quite popular solution - automatic support and resistance zones. As the name suggests, everything happens automatically, but it's not as rosy as it may seem - it only works during an uptrend or downtrend.
In the picture above you can see two moving averages - but this is not a strategy. Note the space that appears between the green and red lines. This is our support / resistance zone. If the trending price approaches this zone, we can expect the price to turn back and follow the trend.
- Add EMA (60)
- Add EMA (30)
After adding the moving averages with exactly the same parameters as given, you should see a similar system of indicators as in the picture above. However, there is a problem - you can be exposed to false signals when the trend ends. The price is approaching the support / resistance zone and is not going to turn back at all.
How to protect yourself from this? In my opinion, it is best to use the knowledge derived from Price Action. Formations that are very likely to predict the direction of the price are very useful. You can also pay attention to the upward / downward trend pattern. And what exactly is going on?
Let's start from the left side. You can see a typical uptrend here - ever higher highs and higher lows. And now there is a key moment - at some point the peaks start to be at the same level. The pattern of the uptrend is disturbed and it is a signal that the price will start to change its direction. Price does not necessarily start to rebound in the opposite direction - stagnation often occurs.
Soon I will describe some useful price patterns for you and warn you right away that it is not an easy topic. In the diagram, everything looks simple - but in the naked diagram, you need distance and frequent control of what is currently happening.
