This is for those starting out to help you better understand and see how the trend moves through support and resistance.
This is an incredibly valuable skill in determining where you will enter and the best place to exit. It will also help in finding safe places to put your stop loss so that you give yourself a fighting chance when you are in a trade.
Start with the first picture and do not open the next until I move onto the next one in the post. This will help in seeing the structure of the market moves and trending patterns as it moves THROUGH support and resistance.
Picture One:
The red lines represent the various floors of a building. We can move upward from floor to floor or we can move downward from floor to floor.
Picture Two:
Imagine we take a magical bouncing ball that does not stop bouncing once set in motion. When we bounce the ball on the floor at level one the ball bounces between the ceiling and the floor over and over until it finds a hole in the ceiling and passes through to the next level. There we have the same effect. The ball bounces off the ceiling and floor until it finds a hole in the ceiling and passes through. This continues for each level with the ball passing through the hole in the ceiling of the next level. This is like the basic price movement in a market. The red lines represent support and resistance and the price moves between them until moving to the next level. Note how at each point previous resistance becomes support.
Picture Three:
After the ball completes its move through the building we find that we can take a line and connect the high and low points to show the trend of the ball as it moved through the various levels. These black lines are the trend lines that contain the upward trend of the price as it moved from one level to the next.
Picture Four:
I’ve color coded each level so you can see how they sit on top of one another like the levels of a building.
Picture Five:
This is the most recent H4 trend for the EUR/USD pair. You can see the same pattern as in the previous pictures here in a real market situation. The trend is a bear trend marked by LHs (lower highs) and LLs (lower lows). The price moves between the support and resistance and then moves to the next level. Obviously the market is not as simplified as my above drawings, but you can see that there is not an incredible amount of difference. Note that the blue lines represent the general range of S/R. Support and resistance is usually in a range because over time when the price returns to these areas traders are exiting and entering the market at different times causing the price to be in a general range of support or resistance.
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