Intraday Support And Resistance: Intraday trading which is also referred to as day trading is a form of trading in which all positions get settled before the end of the trading day.
This means individuals that do not hold the positions overnight and are interested in profiting from the short-term price movements within the day.
Individuals use a variety of strategies in order to identify the levels at which they can enter and exit a position in a security in order to make profits.
But one of the most commonly used techniques, in order to buy and sell the securities, is by using support and resistance levels. In this article, we will be discussing intraday support and resistance trading.
Before jumping into the concept of Intraday support and resistance trading, let us first understand what support and resistance levels mean.
What Is Support?
Support is a level at which the price of a security is prevented from falling any further. These are the levels where security has a strong demand and is expected to have huge buying interest.
What Is Resistance?
Resistance is the opposite pole of the support. It is a level at which the price of a security is prevented from rising any further. These are the levels where a securities demand decreases and experiences a selling interest.
This means these price levels act as barriers that stop security from rising and its price tends to fall again.
Support And Resistance Role Reversal
As we all know, the price of securities is not move in the same range forever and it is bound to break the support or resistance levels at some points.
In such situations, the levels that acted as support will start to act as resistance once that level is broken. Similarly, the levels that acted as resistance will start to act as support when the price has moved beyond that level.
How to Identify Intraday Support and Resistance Levels
Support and resistance levels can be very useful for individuals to know the point at which they can buy or sell security while trading. These intraday support and resistance levels can be identified in different ways:
1. Historical Data
Using historical data is one of the most reliable sources for identifying support and resistance level. The key to identifying the levels here is to familiarise yourself with the past price movement of the stocks.
Plot the points at which the price has repeatedly fallen from as resistance and the points at which the price has repeatedly bounced back up from as the support levels.
2. Technical Indicators
If you have a hard time plotting the intraday support and resistance by yourself, you can use technical indicators that use mathematical formulas, price data, graphs, and charts.
Some of these indicators can be used for the purpose of plotting the support and resistance levels
a. Moving Averages
The moving average indicator can not only be used to find the average price of the security over a period of time but it can also be used as a support and resistance level.
When the price is trading above the Moving Average, the line will act as a support for the Security. When the price is trading below the MA, the line will act as a resistance to the security
b. Support And Resistance Channel
SR channel is another technical indicator that will easily tell you the support and resistance levels for security. Here, the red bands indicate the resistance levels and the green band indicates the support levels.
When the price breaks above these resistance levels, they can also be used as support levels.
c. Pivot Points
Pivot points are an indicator that is used to determine the overall trend of a security. It consists of various support and resistance levels that help you determine when to buy or sell an asset.
Trends can be identified when you join minimum highs (or more) or two lows (or more) of the candlestick pattern and draw a line. These lines can help you identify the trends in the price of the security.
You can use the trend line as a support if the security is trading above the trend line or consider the line as a resistance if the security is trading below the trend line.
In the above image, you can see that a trend line has been drawn using a parallel line, which has created a slightly downward-sloping trend. Here the top trend line will act as a resistance level and the bottom trend line will act as a support level.
There are also various other chart patterns that can be formed with the help of the trend line ranging from triangle patterns to head and shoulder patterns which can also be used for the purpose of intraday trading.
Intraday Support And Resistance Trading Strategy
Using Supports and Resistance levels to trade on an intraday basis is one of the simplest forms of trading. It easily helps you determine the entry and exit points, helps you understand the market sentiment, and also helps you manage risk and place stop losses.
The stock can be bought when the price of the security reaches the support levels and it can be sold when the price reaches the resistance levels.
Support and resistance levels also help individuals to place stop losses and help manage risk. It lets traders know they have to close their positions if the price breaks beyond the support or resistance levels.
Another way you can use support and resistance levels is by implementing a breakout strategy. A breakout here means the price moves beyond the support or resistance levels.
Here the individuals will take a trade in the direction of the break out with an interpretation that the security will further move in the same direction.
In this article, we discussed what is support, resistance, identification of intraday support & resistance, and also intraday support and Resistance trading strategies.
Support and resistance are important concepts in technical analysis that traders use to make decisions to enter and exit trades.
However, it’s important to keep in mind that support and resistance levels are not always accurate. Traders should combine the support and resistance levels with other technical indicators and analysis to make a more informed decision.
Tags: Does support and resistance work in intraday trading?, How do I know my intraday support and resistance?, What is the best time frame for intraday support and resistance?, Does support and resistance really work?, Intraday support and resistance indicator, Intraday support and resistance strategy, Intraday support and resistance nifty, BANKNIFTY intraday Support and Resistance, FINNIFTY Support and Resistance, Intraday Support and Resistance for Nifty 50 stocks, Intraday Support and Resistance