UNDERSTANDING THE CONCEPTS OF SUPPORT & RESISTANCE IN FUTURES MARKET TRADING

Support and resistance are important concepts to grasp when trading technical futures. Support and resistance might be an important aspect of your approach, whether you're using trend, reversal, or reversion-to-the-mean tactics. We'll go into the ins and outs of how this notion works in the real world in this blog article.

What Is the Difference Between Support and Resistance Levels (S&Rs)?

Support: Technical indications that exist underneath a market's current price are known as support levels. They're seen as roadblocks to negative price movement as well as potential drivers for new bids.

Technical indications that are placed above changing market action are known as resistance levels. As a result, bullish gains are stymied by resistance levels, which are viewed as selling opportunities.

Individual price points known as support and resistance levels (S&Rs) may or may not restrict price movement. Price action will either become compressed or tired, or reverse direction, when a market approaches predetermined S&Rs. This data may be used to determine market entry positions as well as fine-tune stop loss and profit goal locations.

S&Rs, like everything else in futures trading, aren't failsafe. Although a support or resistance level may be accurate, the indicator's usefulness is ultimately determined by order flow. No support or resistance level can withstand the attack if enough buys or sells strike the market at the same time.

It's also crucial to respect the local vicinity of each support or resistance level. For example, if topside resistance is established at $40.00 in WTI crude oil, the precise price point isn't always the line in the sand. At $39.94 or $40.04, it's probable that sellers may intervene, halting positive momentum. However, this does not rule out the possibility that the resistance level worked with S&Rs; after all, achieving 100 percent perfection is typically a tedious undertaking.

How to put Support & Resistance in Action

As previously stated, S&Rs may be used in a variety of reversal, trend, and reversion futures trading techniques. Many technical traders rely only on them when determining market entry and exit points. Here are some examples of how S&Rs are used:

Reversal: A reversal strategy is one in which the trader tries to find a point when a current trend will reverse direction. Moving averages are a type of S&R that is frequently employed to do this task. Reversal methods commonly use popular moving averages like the 50-day, 100-day, and 200-day. A fresh long or short position can be taken when a price breaks through a desired moving average in anticipation of the market turning direction.

Trend: Getting in on a directional move in asset pricing may be profitable in futures trading. Entering an established trend from a Fibonacci retracement level is one method traders achieve this. A trend-following position is taken when price pulls back from a periodic extreme to a 38 percent, 50 percent, or 62 percent retracement level, with a buy from bullish support or a sell from bearish resistance.

Reversion to the mean: Reversion-to-the-mean tactics are particularly effective in range-bound markets. Price action is traded from a set high or low, with gains taken when the price returns to a periodic average. In these sorts of strategies, S&Rs generated from Bollinger Bands or pivot points succeed because they give entry points that compliment the sluggish market circumstances.

S&Rs have the advantage of being simple to combine with other fundamentals and technicals. Momentum oscillators like stochastics and moving average convergence/divergence (MACD) are particularly beneficial. When price reaches a predetermined support or resistance level, a trader can use oscillators to identify whether the market is overbought or oversold. The trader may then make an informed bet as to whether a market has achieved a bottom or a top, or if it is likely to prolong a current trend.