In this article I will show you where to look for the candlestick patterns which have higher probability to signal a good trade. It is very important to know that such a pattern gives a stronger signal if it is formed on a higher time frame and if it appears after a clear up/down move. Other important factors that raise the probability are the technical elements like support/resistance, Fibonacci, Oscillators, Moving Averages and other type of instruments. I will tell you more now how to trade candlestick patterns at key level support and resistances.
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| Support and Resistance Zones |
Support – it is a relevant price level for the future price action, because it has triggered a reaction in the past. It is expected to act as a floor next time the price will hit it. The support level is more important if it has resisted in time, if it is found on a higher time frame and if it was touched more than 2 times.
As you can see the definitions are pretty the same. It only differs from where the price will hit the level. If the price falls it is expected to be stopped by a support, if it rises it is expected to be stopped by a resistance. Usually a broken support becomes resistance, while a broken resistance becomes support. Ex tops or bottoms can become support/resistance and also very important are round numbers because they have a heavier psychology implication.
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To understand why this support/resistance work we should bear in mind that at those level the collective memory works. If at some point the price was rejected from a certain level, investors will know and will react again when the price will touch it. For better understanding I will make this short comparison. If someone will touch something, without knowing the fact that it is very hot, it will burn himself. Because of it provokes pain, next time will be more attentive before touching it. This is how support/resistance work in most of the cases.
