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Support and Resistance Do NOT Work Without This ONE RULE
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Traders looking to improve their success rate with support and resistance levels by learning a specific confirmation strategy.
TL;DR
Most traders fail at support and resistance because they enter too early. This video introduces a crucial rule: wait for a 'change of character' (a shift in market momentum indicated by price closing back above a previous high after a downtrend) before trading support or resistance levels. This confirmation helps avoid premature entries and improves trading strategy effectiveness.
Key Takeaways
- Support and resistance levels are areas where buyers and sellers have previously defended the market, not exact price points.
- Many traders lose money by entering trades too early at support and resistance levels, rather than waiting for confirmation.
- The close of a candle on a specific timeframe is crucial for confirming whether a support or resistance level is holding or has broken.
- A 'change of character' (CHoCH) is a key rule to look for before trading away from a support or resistance level, indicating a potential shift in momentum.
- A change of character occurs when the market breaks the last significant high (in a downtrend) or low (in an uptrend) after a break of structure (BOS).
- Traders often fail to apply these concepts in real-time trading due to FOMO and the complexity of sideways price action over extended periods.
- Lower timeframes like the 15-minute chart can be used to confirm support and resistance levels and identify changes of character for earlier entries.
- The yearly open price can act as a significant support or resistance level, offering additional confirmation for trading strategies.
In This Video
- 00:00Support and Resistance Rule Introduction
Many traders lose money by entering support and resistance trades too early. This video introduces a simple rule to improve trading.
- 00:39Understanding Support and Resistance Levels
Support and resistance are areas where buyers and sellers have previously defended prices. The close price is key for confirmation.
- 02:15Common Trading Mistakes Explained
Traders often mistake support/resistance levels as entry points, not areas to look for trades. This leads to premature entries and losses.
- 03:30The Key Rule: Change of Character
The crucial rule is a 'change of character' (CHoCH), indicating a potential shift in market momentum after a break of structure.
- 04:02Break of Structure vs. Change of Character
A break of structure (BOS) confirms a trend continuation. A CHoCH occurs when the market takes out a previous high/low against the trend.
- 06:03Gold Example: Applying the Rule
On gold, a support level was tested. A change of character on a lower timeframe (15-min) confirmed the level's potential to hold.
- 07:16Yearly Open as a Key Level
The yearly open can act as a significant support or resistance level. Its previous role dictates its future behavior.
Questions & Answers
Why do most traders lose money trading support and resistance?
Most traders lose because they enter trades too early, treating support and resistance levels as exact entry points rather than areas to look for opportunities.
What is the key rule for trading support and resistance?
The key rule is to wait for a 'change of character' before trading away from a support or resistance level, indicating a shift in market momentum.
What are support and resistance levels?
Support and resistance levels are areas in the market where buyers and sellers have previously defended prices, acting as self-fulfilling prophecies if enough traders watch them.
What is a 'change of character' in trading?
A change of character occurs when the market closes back above a 'protected high' in a downtrend, signaling a potential shift from sellers to buyers.
How can I confirm a support or resistance level is likely to hold?
You can confirm a level by dropping to a lower timeframe like the 15-minute chart and waiting for a change of character before entering a trade.
What is a 'break of structure' (BOS)?
A break of structure occurs when the market makes a new low in a downtrend or a new high in an uptrend, confirming the prevailing market direction.
Key Terms
- Support and Resistance — Areas in the market where price has previously found buying (support) or selling (resistance) interest.
- Change of Character (CHOCH) — A shift in market momentum where the price breaks a significant high or low, indicating a potential trend reversal.
- Break of Structure (BOS) — When price moves beyond a previous high or low, confirming the existing trend direction.
- Yearly Open — The price level at the beginning of the year, which can often act as a significant support or resistance level.