Support and resistance are foundational concepts in technical analysis. These levels help identify potential turning points in price.
What is Support?
Definition
Support Is:
- Price level where buying emerges
- Floor under price
- Where downtrends pause or reverse
- Area of demand
Why It Forms
Buyers Step In Because:
- Perceived value
- Previous buying memory
- Technical significance
- Psychological levels
What is Resistance?
Definition
Resistance Is:
- Price level where selling emerges
- Ceiling above price
- Where uptrends pause or reverse
- Area of supply
Why It Forms
Sellers Step In Because:
- Perceived overvaluation
- Previous selling memory
- Technical significance
- Psychological levels
Identifying Levels
Historical Price Action
Look For:
- Previous swing highs (resistance)
- Previous swing lows (support)
- Multiple touches
- Clear reactions
Multiple Touches
What Touches Tell You:
- More touches mean more traders are watching the level
- They do not make the level more likely to hold
In tests for Forex Trading Strategies (ch. 3), extra touches did not make a horizontal level stronger: its edge over a matched placebo ran +0.1, +1.8 and −1.0 points by test number.
Round Numbers
Psychological Levels:
- 1.0000, 1.1000, 1.2000
- Often act as support/resistance
- Human psychology
- Order clustering
Types of Support/Resistance
Horizontal Levels
Characteristics:
- Flat, horizontal lines
- Specific price
- Most common type
- Clear to identify
Dynamic Levels
Characteristics:
- Moving averages
- Trend lines
- Move with price
- Angled support/resistance
Zone vs Line
Reality:
- Price rarely perfect
- Zones more realistic
- Area, not exact line
- Allow for variance
Role Reversal
Principle
When Broken:
- Old support becomes resistance
- Old resistance becomes support
- Common market behavior
- Creates trading opportunities
Example
Support Break:
- Price at support level
- Breaks below support
- Rallies back to level
- Now acts as resistance
- Price rejects and falls
Why It Happens
Psychology:
- Trapped traders
- Exit on retest
- New sellers at level
- Supply/demand flip
Trading Support and Resistance
Buying at Support
Approach:
- Identify support level
- Wait for price to reach it
- Look for buying confirmation
- Enter long position
- Stop below support
- Target resistance above
Selling at Resistance
Approach:
- Identify resistance level
- Wait for price to reach it
- Look for selling confirmation
- Enter short position
- Stop above resistance
- Target support below
Trading Breakouts
When Price Breaks:
- Wait for clear break
- Confirmation of break
- Trade in breakout direction
- Stop on other side
- Target next level
Level Strength
Strong Levels
Characteristics:
- Clear rejections
- Higher timeframe
- Confluence with other factors
Weak Levels
Characteristics:
- Single touch
- Weak reaction
- Lower timeframe
- Isolated level
Confirmation
Why Wait for Confirmation
Reasons:
- Levels can break
- False breaks happen
- Confirmation increases probability
- Patience pays
Types of Confirmation
Signals:
- Candlestick patterns
- Volume increase
- Momentum shift
- Price structure
Common Mistakes
Drawing Too Many Levels
Problem:
- Chart cluttered
- Every level seems important
- Paralysis
- Confusion
Solution:
- Focus on key levels only
- Higher timeframe priority
- Most significant reactions
- Less is more
Exact Lines vs Zones
Problem:
- Expecting exact bounces
- Stopped out by noise
- Missing trades
- Frustration
Solution:
- Think in zones
- Allow for variance
- Give room for error
- Approximate is okay
Ignoring Timeframe
Problem:
- Lower timeframe levels prioritized
- Less significant
- More noise
- Lower probability
Solution:
- Higher timeframes first
- Then lower for precision
- Context matters
- Major levels priority
Key Takeaways
- Support is a floor, resistance is a ceiling
- Form due to buying/selling memory
- Extra touches do not make a level stronger
- Round numbers create psychological levels
- Broken support becomes resistance and vice versa
- Trade bounces or breakouts at levels
- Wait for confirmation before entry
- Think in zones, not exact lines
- Focus on key levels, not all levels
- Higher timeframe levels are more significant
What's Next?
Learn about order types and how to execute trades properly.
This article is for educational purposes only and does not constitute financial advice.
Risk warning. This is education only, not financial, investment, tax or legal advice, and not a recommendation to buy or sell anything. Trading forex, CFDs, stocks, commodities, futures, options and crypto is high-risk; with leverage you can lose more than you deposit, and most retail traders lose money. Before you trade or invest in any form, check the local laws where you are and the rules of your country of residence, and consider your own financial situation; if in doubt, ask a licensed adviser. Past and tested results, and all examples, are for illustration only and do not guarantee future results.