SUPPORT & RESISTANCE
This is one of your strongest confluences that you will use when trading anything from currency pairs to shares. Use the swing highs and swing lows to identify where the levels of support and resistance are. It’s very simple to learn and the easiest way to show you is through this line graph below
This is a basic example of how support and resistance works, The blue diagonal lines represent price in the form of a line graph and places where its tried to approach and reversed from are known as key levels of support and resistance.
​
You need to think of levels of resistance as ceilings. So at a strong level of resistance you will see price reject the area and move in a bearish direction or a retrace. You need to think of levels of support as floors. So at a strong level of support you will see price reject the area and bullish momentum take control.
​
If price has been falling down, then suddenly stops and doesn’t continue to fall, that means it’s found support, or hit a “floor”. Just like support is seen as a floor, we see resistance as a ceiling, price could be moving up and then stop and doesn’t continue upwards, which means we have hit resistance.
Support or resistance is characterised by an area of the chart where there is a reversal in price direction. Support immediately follows a sustained period of there being more sellers than buyers in the market and resistance immediately follows a sustained period of there being more buyers than sellers in the market.
Example of a candlestick chart above
To find the most significant levels of support and resistance you would click through to the higher timeframes (monthly/daily) and find levels of support and resistance there.
​
These levels will be the strongest and are the ones to look out for. But if you’re trading smaller timeframes and more intra-day trading then you can do exactly the same on those timeframes. You should keep an eye out for recent levels of support and resistance, many traders refer to this as finding structure.
An easy way to spot levels of support and resistance is to flick from the chart you’re looking at to a line chart. This will show you the exact place in the market where price either found support or hit resistance. The line graph on the left demonstrates how it is easier to spot those levels.
It’s harder to see the best place to draw on your support and resistance with the candlestick chart. That’s why we use a line graph most of the time to spot the key levels. These key levels are really important, combined with other confluences such as candlestick formations, they provide great opportunities to get in and out of trades.
It’s important to remember that support and resistance levels are NOT exact. What we mean by this is that they are key areas of support and resistance, they may not match perfectly on a chart and there might be some wicks in line with some candle closes. This doesn’t matter, they are still key levels and key areas that will help us build confluences to make a high probability trade.
Above we have an example of how resistance when broken will become support and support when broken will become resistance. Reading price action correctly around these key areas of support and resistance willimprove your success rate as a trader. Particularly looking out for reversal patterns, long wicks and the strength of the candles around these areas.