Why is identifying key resistance levels greatly beneficial for making profits?

Because the market trend is like a river, naturally flowing in one direction, and you don't know how to grasp it.

However, if there is a dam at this time, the river water will flow back in the opposite direction. Identifying key resistance levels is like finding this dam, which can find greater certainty in the market trend, increasing our chances of profit.

I have also mentioned before that everything in trading can change, only human nature remains constant.

Human nature is similar, liking to chase rising prices and sell off when falling, flocking when prices rise, and running away collectively when they fall. As long as we grasp the weaknesses of human nature and enter orders at this point, the certainty is higher, the force of reversal is sufficient, the stop-loss space is small, and profits are maximized by leveraging the market's inertia.

Moreover, the technical analysis methods we are using now all originate from Dow Theory, foreign wave theory, Gann Theory, domestic Chan Theory, trend trading methods, etc., and their internal logic is not much different, leading to a very consistent consensus, especially in finding key support and resistance positions.

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The chart is a weekly chart of the Shanghai Stock Index, with at least three technical points supporting the resistance and support effect of 2800 points.

(1) Near 2800 points is an important low point in recent years, which has a supporting and resisting effect.

(2) 2800 points is a large dense transaction area in front, which has a supporting and resisting effect.

(3) 2800 points are also near the support of the rising trend line.Moreover, the 2800 mark is a significant psychological threshold. Even pessimistic investors believe that around 2800 points, at the very least, it is a technical level worth attempting to buy into, and the common buying expectation supports the 2800 point level effectively.

So, are there any techniques for identifying key resistance levels?

We have encountered these several trends in the market.

In the upper left is the gold daily chart. The market, after being resisted and suppressed at the previous high of 1935, turned from rising to falling, making 1935 a point of resistance.

After the market fell, it tested the previous low at 1891, and after being supported by resistance, it began to stabilize and reverse upward, making 1891 also a point of resistance.

In the upper right of the chart is the gold 1-hour chart. When the market fell back to test the 120 moving average, it was supported by the 120 moving average, and the market stabilized and moved upward, with the 120 moving average acting as resistance.

At the bottom of the chart is the gold 4-hour chart. Near 1795, a dense transaction area was formed (an area of long-term narrow-range consolidation). After the market broke through this area, it became a key resistance level due to the support of many buy orders in this area.

The market tested the dense transaction area near 1795 multiple times, and each time it received support from the resistance level, it reversed and moved upward.

These three are all key resistance levels.

What are the technical criteria for finding these three types of key resistance levels?1: The most prominent previous highs and lows on the chart can serve as key resistance levels. Open the chart without adding any indicators and make your selection.

2: Using moving averages as key resistance levels is quite straightforward; you can choose commonly used parameters, such as the 90, 100, 120, 180, 360-day moving averages, and so on.

3: Before a dense transaction area, it is necessary to have a clear trend, such as a top or bottom reversal, or a clear trend continuation that forms a dense transaction area. Once the dense transaction area is broken through, it plays the role of a key resistance level.

These three technical methods are the most widely used key resistance levels and can be applied in practical trading. Others, like gap openings and round-number price levels, also have the function of resistance levels.

Since key resistance levels are so important, I will next explain three methods of trading using key resistance levels, taking the technical criteria of the three types of resistance levels mentioned above as examples.

Method 1: Intraday trading, look for key high and low points on the hourly chart, enter from a smaller time frame, and trade the reversal of the trend.

Analyze the trend on the hourly chart, selecting the most obvious and important key resistance levels at the 1-hour level and mark them on the chart.

The chart shows the 1-hour candlestick of the Euro to US Dollar, with the left side being the 1-hour candlestick and the right side being the 15-minute candlestick.

Analyzing key positions at the 1-hour chart level, three important resistance levels can be identified, which are:

(1) The previous low support and the 38.2% Fibonacci retracement level, resonating at the position 1.13730.(2) The low point of the second wave retracement and the resonant position of the golden section 61.8% is 1.13270.

(3) The starting point of the market's initial wave is 1.12540. After identifying the key resistance level, wait for the market to fall back to the resistance level and enter the position in conjunction with the pattern at the 15-minute level. After the market has been consolidated at a high level, it tests the first support level at 1.13730. At this time, switch to the 15-minute chart, and enter when a reversal candlestick pattern forms on the 15-minute chart. Set the stop loss at the low point and the take profit near the high resistance level on the 1-hour chart. After the order is entered, the market first consolidates at the bottom, then rises, and takes profit at the high level. There are two points to note in this trading pattern:

(1) Drawing lines. Draw lines when there are no orders, because being out of position is the calmest, and finding the position is the most accurate. Once drawn, do not change them casually.

(2) Waiting. Waiting is the core and also the difficulty. Sometimes the market does not fall back to support and starts, missing out on profits can lead to impatience and mistakes.

Method 2: Enter on support at the 100-day moving average, use the 150-day moving average as a stop loss, and conduct swing trading. The logic of this trade is more aggressive and requires a large-scale trend resonance to operate.The chart shows the EUR/USD candlestick, with the left side being the 4-hour chart and the right side being the 1-hour chart. The black moving average is the 100 MA, and the red moving average is the 150 MA.

The 4-hour chart on the left indicates a clear trend of fluctuating upward movement, with a bullish trend.

Switching to the 1-hour chart, look for opportunities to go long when the market falls back to the 100 MA.

On the right side of the chart, the 1-hour chart shows a fluctuating decline, testing the 100 MA. After the market tests this level, a doji candlestick with a reversal implication forms, which is a direct signal to enter a long position. Set the stop loss below the 150 MA and the take profit at a 2:1 risk-reward ratio.

After the order is entered, the market goes through fluctuating upward movement, breaks through the previous high resistance, and the profit reaches the 2:1 ratio, triggering the order to take profit.

There are two points to note in this trading pattern:

(1) Using two moving averages for trading is relatively aggressive. It is essential to confirm the trend on a larger time frame before applying this method on a smaller time frame.

For instance, a 1-hour trend can be confirmed on a 15-minute chart, a 4-hour trend on a 1-hour chart, and a daily trend on a 4-hour chart.

(2) When using moving averages for stop loss in trading, the space for each stop loss is not fixed. If the stop loss space is large, you can adjust the position size accordingly to control the trading risk.

Method 3: Use the area of dense transactions as the key resistance zone, buy in batches, and set the stop loss at the low point of the dense transaction area.After the market breaks through the dense trading range, enter the market in batches during the pullback, with stop losses uniformly set at the low point of the dense trading area. After the market starts, take profits uniformly at a high level.

The chart shows a 30-minute candlestick chart of the Euro against the US Dollar.

After a wave of increase, the market formed a narrow range consolidation, a dense trading area, where the market had several fake breakouts for washing, and ultimately the market broke through upwards, supported by a lot of buying.

After the market breaks through the dense trading area, wait for the pullback to the support band of the dense trading area before entering.

Both the left and right sides of the chart are 30-minute candlestick charts of the Euro against the US Dollar. To give everyone a view of the whole, I have shrunk the candlesticks on the left. And to let everyone see the details, I have enlarged the candlesticks on the right. After the dense trading area formed on the left, the market pulled back to test the dense trading area.

After the market tested in place, the chart on the right consecutively formed three reversal candlestick patterns, and positions were opened with these three reversal patterns, with stop losses uniformly set at the low point of the dense trading area.

After the orders entered, the market went through a day of consolidation before it started to rise, and all orders were uniformly taken profit at a high level.

There are two points to note in this trading model:

(1) Since it is entering in batches, and the stop loss is at the high and low points of the dense trading area, the stop loss space will be relatively large, so the position must be controlled, and light positions should be traded to control the risk.

(2) This trading model is a wide stop loss model with a relatively high success rate, but using positions in batches, there are fewer opportunities to open positions when the pullback is small, and the profit will be reduced.I have finished explaining the trading methods for these three key resistances. In fact, the term "key resistance level" is a general term, which is generally divided into two categories: resistance above the candlestick is called the "resistance level," and resistance below the candlestick is called the "support level." This way of speaking might be more familiar to everyone.

Additionally, the technical methods for key resistance levels are applicable to different time frames, markets, and types of securities, and they have a very strong adaptability, which is well worth our in-depth study.