In recent years, trading indicators have gained popularity, particularly among Indian investors, and they form a significant part of an investor’s strategy. When used alongside effective risk management tools, trading indicators can expose investors to more insight into price trends.
Regardless of your preferred method of trading, adopting technical analysis in your strategy, including several trading indicators, can help achieve the right results. To explain further, this guide will discuss what a support and resistance indicator is and its importance. So, keep on reading!
What is a Support and Resistance Indicator?
The concept of support and resistance (S&R) is an essential one for most traders who are looking to reduce their exposure to risks in their daily trades. Traders can also discover accurate entry points into the market. Support can be viewed as a zone that prevents the downward trend of a price. On the other hand, resistance is a zone that works as an obstcle against the price increase.
What the S&R indicator does is that it locates the closest support and resistance levels as explained above for the loaded traffic. The S&R points represent the most effective way of identifying target prices. Simply put, the S&R points represent the best price points where the maximum amount of selling or buying can be achieved.
At the support price point, more buyers are expected than sellers. Conversely, you can expect more sellers than buyers at the resistance price.
Is a support and resistance indicator important
As an investor, there is a great need for clues on future trends in prices. To achieve this, adopting a support and resistance indicator is an instrument that can help in identifying the essential levels where the price trend has a higher possibility of changing direction or halting.
Adopting the S&R indicator can shape your decision making process as a trader for maximum results. Take, for instance, you can buy near support points in uptrends or the parts of ranges where prices seem to increase. Likewise, you can sell near resistance in downtrends or the parts of ranges where prices seem to reduce.
As a result, you can isolate a longer-term trend. With this trend, you can acquaint yourself with the appropriate direction to trade in. If a range starts to develop when the trend is down, it is important to opt for short-selling at range resistance, rather than buying at range support.
With this downtrend, it is quite obvious that going short (or selling) promises a higher probability of yielding profits than going long (buying). On the other hand, if a range develops for an uptrend, then you should opt for buying near support price.
Furthermore, it is worth stressing that while there are no guarantees that the concept of support or resistance will hold, selling near resistance or buying near support can pay off. If you wish to buy near support, then try to wait for the support area to strengthen. Then, you can buy once the price rises above the high of that area.
When such a movement occurs, it shows that the price still conforms with the support area. This also indicates that the price has started to rise higher off of the support point. Considering this significantly affects your decision and the same can be applied to selling at resistance. In other words, wait until the resistance area strengthens. Then, a price drop below the low of such consolidation should make you enter a short trade.
As an investor, your decision-making process is key to the kind of results you get. It is equally important to manage the risks involved in trading, and in trading indicators, you have mathematical calculations that ensure that traders can spot trends and signals in the market. With this in mind, technical analysts make use of the support and resistance zones to acquaint themselves with past prices and predict future price movements. Indeed, the best way to know what the market will do next is to know what the market is thinking!