Support and resistance in Zone Trade
When we refer to support, we are referring to a price level on a chart where buyers have entered into the market via their orders and overpowered the sellers causing the price to rise again.
Similarly, resistance is a level on a price chart where sellers have entered the market via their orders and overpowered the buyers, so that the price finds a level to the upside that it cannot break, causing the price to fall again.
The price will break through either a support or a resistance level when there are no longer enough buyers to hold the support level, or enough sellers to hold the resistance level.
In this event, you will often find that when the price comes back to a support or a resistance level, the level often switches to make a new resistance or support level respectively. In other words, a support level becomes a resistance level and a resistance level becomes a support level.
How to use support and resistance in the Zone Trade strategy?
For the Zone Trade method, it is this point, where a support or resistance switches, that we are interested in.
We will not buy at support and sell at resistance, which is the traditional method of trading with support and resistance. We will instead wait until the price has broken through either a support or a resistance level and tested it again from the other side before we enter into a trade.