Trends and technical levels are both very important in technical analysis and price forecasting, especially in forex investing.
Trends include 3 states: Uptrend, downtrend, and sideways.
Technical levels include two levels: resistance and support.
So in the process of technical analysis and price forecasting, if you need to decide to choose the priority between the trend and the technical levels, which criteria will you choose to prioritize.
If we are lost in an area with large terrain (in the forest, in the desert, ...) then the trend acts as a compass to help us find a safe direction, and the Technical levels are milestones in that terrain.
Of course, when we combine the use of both trend and technical levels (along with many other factors) into our analysis and trading system (forex trading, trading gold, oil,..) will be highly effective. However, there are many traders who only fit, or prefer to use only one of these two factors (not both), or in some cases the trading system gives inconsistent (even contradictory) signals. ) between those two factors, then we have to choose 1 of the 2 factors as priority.
Many technical analysis documents or forums claim that trend is number 1 - the top priority in every trading system.
However, I personally think that TECHNICAL LEVELS ARE NUMBER 1, here are the reasons why I choose TECHNICAL LEVELS AS THE MOST IMPORTANT FACTOR IN TECHNICAL ANALYSIS:
1. NO TRENDING FACTORS NEEDED - TECHNICAL LEVELS STILL VALUE: Regardless of the trend, the price is at technical levels so we can make a trading decision.
Whether the market is trending up or down or sideways, when the price enters technical levels (resistance or support), we can make a decision to trade in that area.
For example, in an uptrend, if the price is at a support area we BUY to trade in the trend, if the price is at the resistance area we can also SELL to trade against the trend. With a downtrend, the opposite is true. When the market is moving sideways, it is obvious to buy at support and sell at resistance. The last thing is to filter and analyze further other suitable conditions, to decide whether to trade or not, and at a particular price.
2. TRENDING FACTORS - IF THERE'S NO TECHNICAL LEVELS AND THE DECISION IS NOT AVAILABLE: Even if the trend is in favor, but the price hasn't entered the technical levels, we can't make a trading decision yet. .
For a trend-following trader, waiting to BUY is obvious, so in an uptrend they can't buy at any price, have to wait for the price to drop to the "critical zone" (where that they think will end up correcting to rise again in line with the trend), "critical areas" are usually technical levels (support in an uptrend, resistance in a downtrend). In other words, the price needs a "fulcrum" to bounce back to the main trend of the market. Usually, few traders will enter an order in an "unfounded" price zone to trigger an order.
3. TECHNICAL LEVELS TO OPTIMATE R:R RATIO
R:R ratio (RISK : REWARD) is an extremely important factor in any trading system, it is the heart of capital management. If a system has a lower R:R level, the higher the level of safety as well as the possibility of success will be.
And, optimizing the R:R ratio will be very convenient if we enter at technical levels, because when trading at these levels, the stop loss will be very short, and the take profit will be quite long, In other words, if the trade is lost, we will lose a little, and if the trade order wins, we will win a lot.
4. TRADE AT TECHNICAL LEVELS THAT WILL BE BETTER FOR TRADER'S PSYCHOLOGYe:
Trading at technical levels will help the trader's psychology to be more stable, confident, and much more comfortable. When the trading psychology is good, it will help to be wise in analyzing and making reasonable investment decisions, thereby helping the trading system to operate more efficiently.
Above are the 4 reasons why I choose TECHNICAL LEVELS as the top key factor in every trader's trading system following technical analysis. At the end of this article, I would like to quote the saying that the scientist Archimedes once said: "Give me a lever long enough and a fulcrum on which to place it, and I shall move the world". For me personally, technical levels are a perfect fulcrum in the trading system!
Thank you for reading and sharing this article, looking forward to receiving many suggestions and comments. See you in the next posts
Best regards,
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