How to Use Support and Resistance to Trade CFD

In the above previous lesson trades examples we have looked at support & resistance levels that were not broken. These points held because they were strong enough.

However, sometimes support and resistances levels aren't strong enough to stop movement of the price moving in a certain direction. When price moves past these support and resistance points we say the levels have been broken. That is why we always use a stop loss when trading these levels, just in case they do not hold.

But what happens when these levels are broken, well the levels change one to the other, for examples

• When a support is broken it becomes a resistance

• When a resistance is broken it becomes a support

Using charts, the examples below show an illustration of what happens when these levels break:

Support is broken it becomes a resistance

In the cfd example shown below, the support that had been tested two times could not hold the third time, the sellers were able to push the price down past this level.

However, the price bounced back up again, but this time the price could not go up beyond this line. The price was there after quickly pushed down by the sellers. This was because the line that was a support had now turned into a resistance.

In cfd trading when a support is taken out, the stop losses placed below that level are also taken out, thus reducing the momentum that the buyers had. This give sellers an opportunity to short sell the cfds & place their stops just above this level which now turns into a resistance level.

Resistance is broken it becomes a support

In the cfd example shown below using the chart, the resistance level that had been tested two times could not hold the third time, the bulls were able to push the price up past this level.

When the price tried to go down again it couldn't move lower than this level. The price was there after quickly pushed further up-wardupwards by the buyers. This was because the line that was a resistance had now turned into a support. This is what happens in cfd trading, when a resistance level is broken it turn into a support level.

Traders who had closed their short sell trades will now open long trades & place their stop losses just below this level.

Major and Minor Resistance Areas

In charts the resistance & support levels formed are either major resistance/support points or minor resistance/support points.

Major Resistance/Support levels

In Major Resistance/Support levels price will stay at this level for some time, either the price will consolidate at this point or form a rectangle cfd chart pattern when price gets to this point. This level will be tested several times before it is either broken or it holds and price does not get to go past this support/resistance level.

The above examples are good examples of major Resistance and Support Levels.

Minor Resistance/Support levels

In minor resistance and support points the price will quickly form these points in the short term & the price also moves quickly past these resistance and support areas.

Upward CFD Trading Trend: The pattern of this minor resistance and support points will form a series of areas whose general direction is upwards.

Upward Trend Series of Support and Resistance

Downwards CFDs Trend: The pattern of this minor resistance & support points will form a series of areas whose general direction is downwards.

Downwards Trend Series of Support and Resistance