Investigating the merits of support and resistance strategy: Evidence from international financial markets


Author(s): Samuel Tabot Enow

Support and resistance strategy is widely recognized in financial markets as it revolves around identifying specific price levels on a chart where the buying and selling pressure is historically significant. By analyzing these historical price actions and market trends, traders can utilize fundamental analysis strategies to predict future price movements. The aim of this study was to empirically explore the merits of a support and resistance strategy in financial markets due to its perceived significant impact on active market participants. A probability algorithm and Sharpe ratio model was utilized for six financial markets from June 13, 2018 to June 13, 2023. The findings revealed that market participants in the JSE and DAX can use support and resistance strategy to enhance the value of their portfolio than a buy and hold approach. This can be achieved by determining the entry and exit points for trades, setting the entry point slightly above the support level to confirm a potential price reversal and selling near a resistance level. A stop-loss orders should also be utilized in along with the above mentioned steps to manage risk