I think the most important advantage of support and resistance, is that support and resistance operate in all markets and at all time intervals. Regardless of whether we intraday trade within various markets daily, we can still use the same technique. We mention this important factor in our forex trading course entitled the slumdog forex trading system for scalping the markets. A little more complex is the issue of structured certificates, since there occurs a factor of exchange, which virtually all of us breaks the psychology underlying support levels and resistance.
Now although we have a lot of advantages with using support and resistance lines, there are also a bit of disadvantages with utilizing them. The first relates to the nature of price movements. If we trade the retracement from the previous swing high, and then we have a dynamic upward trend, we will likely be thrown on the stop, because we are now fighting against the trend. Therefore, always count the broader picture of the market and take positions in accordance with the dominant trend. As a consolation I’ll add that sometimes you can catch a double top or double bottom, which makes our position earning quite substantially (depending on the exercise thereof).
Another issue is trading during times of consolidation. Occupying a position to return to the formation of a rectangle, we know that our earnings potential is limited due to the other end of the formation. Of course, each rectangle is broken, but it still did not have before us virgin chart.
And the most severe limitation is the lack of short selling in shares, which practically cut in half the amount of investment opportunities. This only applies to trading stocks and does not refer to the forex market. In this situation, any resistance may serve us as a place to close all or parts of an item, but we can not go for a while and enjoy a rebound. An alternative are other investments, such as futures and forex.