Support and Resistance Indicators
Support and Resistance indicators are used to determine probable levels at which the current trend might experience resistance to further buying or levels at which support may hamper further selling. These indicators can generally be grouped into indicators that plot trendlines, such as Gann lines, Speed Resistance Lines (SRL) and Fibonacci fans, and indicators that plot support and resistance lines, such as Fibonacci retracements and Fibonacci extensions. Some of them, such as Andrews' Pitchfork and Envelopes, also plot trend channels. As such, these indicators are well suited to use in trend following trading systems and strategies.
The Fibonacci retracements, which suggest a number of possible support or resistance levels, is the most widely used support and resistance indicator among technical analysts. Other popular support and resistance indicators include: Fibonacci fans, Andrews' Pitchfork, Speed Resistance Lines (SRL), and Envelopes.
Most charting software packages have these indicators as drawing tools that can be drawn directly on the price chart. The technical analyst is simply required to identify the start of the current trend and draw the initial line at the significant market tops and bottoms that mark the start of that trend. The drawing tool then plots the subsequent set of lines that determine probable support and resistance areas.
Andrew's Pitchfork is a support and resistance indicator that was developed by Alan Andrews. Most modern charting software packages include Andrew's Pitchfork as a drawing tool that is applied to the price chart. Andrew's Pitchfork plots three parallel trendlines to form a support and resistance channel with a median line. The lines are drawn from three consecutive pivots and are used to determine levels at which the market could encounter support or resistance.
As with any other trend channel, the outer trendlines are used to mark the area where the ...
Fibonacci Retracements is a popular support and resistance indicator based on the proportional relationship between the numbers in the Fibonacci sequence. The Fibonacci sequence is the sum of the two numbers beginning with 0 and 1. The key ratios between these numbers are: 161.8%, 61.8%, 38.2% and 23.6%. These ratios, and the 50% ratio, are used to divide a price movement in a wave, and plot horizontal lines to determine where a retracement could find support or resistance before the trend resumes.
Fibonacci retracement levels are ...
Pivot Points were developed by floor traders as a quick and easy method of identifying key support and resistance levels, which are called pivot levels, at which the market might turn, and to identify the direction the market may take in the short-term.
At its basic level, these pivot levels are calculated using the range and close of the previous period. However, there are different formulae that can be used to calculate the various support and resistance levels, which includes the Classic Floor Trader's Method, the Woodie ...
Speed Resistance Lines
Speed Resistance Lines (SRL) is a support and resistance indicator that was developed by Edson Gould. It can be used to identify possible levels at which the price action might encounter support or resistance, which makes it possible to determine possible price targets and possible re-entry levels. The SRL is similar to Fibonacci Fans except that it uses 1/3 and 2/3 levels rather that the Fibonacci ratios to produce trendlines.
The two speed lines drawn using the 1/3 and 2/3 levels mark two possible support levels in an ...
Support and Resistance
Support and Resistance lines are often confused with trend lines but they are horizontal lines under the lows and above the highs respectively. They indicate where a previous rally met resistance and where a previous decline met support. These are two important levels in terms of trend identification since an uptrend will tend to break previous resistance levels above the market while a down trend will break the previous support levels below the market.
When the support line below the recent minor low in broken in an uptrend, it indicates that ...
Trend lines form the basis for channel lines when the price can be seen to bounce off a line parallel to the trend line. The latter is called the channel line and is drawn along the peaks in an uptrend and along the dips or valleys in a downtrend. However, the price must bounce off the channel line at least twice to confirm the channel. The more tests the trend line and channel line survives without being broken, the more significant the channel is considered to be.
However, the trend line, which offers trade entries in the direction of the trend, should always ...