How to Use Support & Resistance to Trade Indices

In the above previous course trades example we have looked at support & resistance levels that weren't broken. These levels held because they were strong enough.

However, sometimes support & resistances levels are not strong enough to stop movement of the price heading in a certain direction. When stock price moves past these support & resistance points we say the levels have been broken. That is why we always use a stop loss when trading these technical levels, just in case they do not hold.

But what happens when these areas are broken, well these levels change from one to the other, for example

When a support level is broken it turns into a resistance

When a resistance level is broken it turns into a support

Using charts, the illustration put on display below shows an example illustration of what happens when these technical levels break:

Support level is broken it turns into a resistance

In the illustration explained & shown below, the support which had been tested two times couldn't hold the third time, the sellers were able to push the price down beyond/past this technical level.

However, the price bounced back up again, but this time the market price couldn't go up beyond this line. The price was there after quickly pushed downward by the sellers. This was because the line that was a support had now turned in to a resistance.

In indices trading when a support is taken out, the stop losses placed below that area are also taken out, thus reducing the energy that the buyers(bulls) had. This give sellers an opportunity to short sell indices & place their stops just above this level which now turns into a resistance level.

Stock Index Trade Concept of Support & Resistance Levels to Trade Stock Index

Resistance is broken it turns into a support

In the example explained & shown below using the chart, the resistance area that had been tested two times could not hold the third time, the bulls were able to push the price upward beyond/past this technical level.

When the market price tried to go down again it couldn't move lower than this technical level. The price was there after quickly pushed further upward by the buyers. This was because the line that was a resistance had now turned in to a support. This is what happens in indices, when a resistance zone is broken it turn into a support level.

Resistance is broken it turns into a support - Indices Trade Concept of Support Resistance Levels to Trade Indices

Traders who had closed their short sell stock trades will now open long trades & place their stop losses just below this level.

Major and Minor Resistance Zones

In charts the resistance and support zones formed are either major resistance or support areas or minor resistance/support areas.

Major Resistance/Support levels

In Major Resistance/Support levels price will stay at this level for a while, either the price will consolidate at this point or form a rectangle chart pattern when stock price gets to this point. This level will be tested several times before it is either broken or it holds and stock price doesn't get to move past this resistance support area.

The above example are good examples of major Resistance and Support Areas.

Minor Resistance/Support levels

In minor resistance & support areas the price will form these points quickly in the short term on the chart & then quickly move past these resistance & support point zones.

Up-wards Index Trend: The setup of this minor resistance and support areas will form a sequence of several levels whose general direction is upwards. Upwards Trend Series of Support & Resistance Levels - Stock Trend Line on Trends in Charts

Up-wards Trend Series of Support and Resistance

Downwards Trading Trend: The pattern setup of this minor resistance and support areas will form a sequence of several levels whose general direction is downward.

Downwards Trend Series of Support Resistance Levels

Downwards Trend Series of Support and Resistance

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