When it comes to technical analysis,
the understanding of which support and resistance levels to not trade can be as important as knowing which ones to trade.
In this article, I will show you the structure levels that professional traders avoid to maximize their profits and minimize losses.
Invalidated support and resistance
Invalidated support/resistance is the structure that has a clear historical significance, but that lost its strength and was neglected by the market during the last 2 tests.
Have a look at that key horizontal support.
We can see that in the recent past, the price bounced from that multiple times, confirming its significance.
Then, the price suddenly broke and closed below that support.
According to the rules, that structure should turn into a resistance after a violation.
However, after its test, the price bounced and violated that to the upside.
The structure became invalid, and you should not trade that in future.
Resistance in a Bullish Trend
If the market is trading in a bullish trend, according to the rules its last higher high composes a key horizontal resistance.
USDJPY is trading in a strong bullish trend.
The price dropped once it set a new higher high higher close.
It composes a key horizontal resistance.
Always remember, that in a bullish trend, the price tends to set new higher highs and higher lows over time.
Quite often, the test of the level of the last high leads to a further bullish continuation and a formation of a new higher high.
For that reason, it is better not to trade such resistances.
Support in a Bearish Trend
In a bearish trend, the last lower low is always considered to be a key horizontal support.
Above is a price action on USDCHF.
The pair is bearish and recently set a new lower low.
It is a key horizontal support now.
However, in a bearish trend, the price tends to set a new low after a retracement. Most of the time, it does not respect the support based on the last lower low.
I recommend you not to trade such supports.
I always repeat to my students that key levels work, but they are not equal in their significance. While some of them are very strong, some are better to be avoided.
