All of you would have seen the supports and resistances which i provide to all on a daily basis. These S and R are points in which the price is expected to stall and also there is a greater probability of the price falling from the resistance than it breaking. Thats what make the S and R useful and powerful.
But the big mistake that many traders make is to follow the S and R blindly. When the price nears a support or a resistance, we need to analyse the market situation as well as the market sentiment before we decide whether we are going to enter into the trade or not.
The market is like the frictionless ball which keeps rolling in one direction unless and until acted upon by a force. Everyday, atleast 3 forces act on the ball (market). These are the begin of the Asian session, European session and the American session. Apart from these three forces, there could be other forces like news, press conferences, rate hikes etc. but everyday will have atleast 3 forces. Lets say that in the begin of the Asian session, the ball is rolling in favor of the longs. The Asian traders would either choose to slow down the ball or force it to travel in the same direction faster or force it to reverse. Whichever is the direction, the ball keeps rolling in that direction till the begin of the European session (unless there is some news in between. If there is news, then that would be another force which will make the ball gain momentum or change direction). Likewise, the European traders would also make the ball move in a specific direction (either same or reverse). This trend continues during the American session as well and would be interrupted only by news etc.
So when entering a trade based on S and R, it is important to know what time it is and which direction the ball is rolling. The best example would be a day when in the begin of the Asian session, the ball began to roll in the direction of the longs. This continued in the Euro session as well. So midway, through the Euro session it would be foolish to enter into a short just cos we have met a resistance. The ball is rolling in favor of longs from the Asian session and continues thru the Euro session and since there has been nothing to change that direction, it is expected to roll in that direction only till the next force (like the news or begin of American session) comes in. So in such cases, it is better to wait for the next force to come in to get the correct direction (whether the force continues the move in the same direction or reverses it) before entering in the market. For example, on the above day, it would not have been a great idea to enter into shorts at any time just cos a resistance was near.
So always keep in mind the frictionless ball and trade accordingly.
Do follow me on twitter (http://twitter.com/ns_karthik ) where i post some of my trades in real time.
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