Support and Resistance

What are Support and Resistance

Support and Resistance is a concept in technical analysis that explains the movement of the price of particular security which in the future will possibly going to stop and will reverse at certain predetermined price levels. It is not rocket science to identify Support and Resistance, and it can be applied to any market, ie Stocks, Commodities or Forex.

When price pushes above resistance, it becomes a new support level. When the price falls below support, that level becomes resistance. When a level of support or resistance is penetrated, price tends to thrust forward sharply as the crowd notices the BREAKOUT and jumps in to buy or sell. When a level is penetrated but does not attract a crowd of buyers or sellers, it often falls back below the old support or resistance. This failure is known as a FALSE BREAKOUT.

NOTE- Support and resistance are not fixed priced but are present in a particular area, so don't look for them at a definite price level but in between two price levels forming an area. 

Support and Resistance basics tutorial part 1 

Support and Resistance basics tutorial part 2 

SNR AREAS

What is the Support level?

A support level is a price level(area) where the price tends to find support and is more likely to bounce back rather than breaking through it, but once the level is being broken by the price moment, it is likely to drop until finding another support level. Support is the price level at which buyers are expected to enter the market and this will prevent the price from falling further. The market has memory, so as the price declines previously low, buyers become more likely to buy and sellers become less likely to sell. By the time the price reaches the support level, buyers will enter the market in sufficient numbers to prevent further fall in the price and creating a support level. Once a support level is broken, it often becomes a new resistance level for future price action.

What is the Resistance level?

A Resistance level is a price level(area) where the price tends to find resistance and is more likely to bounce back rather than breaking through it, but once the level is being broken by the price moment, it is likely to continue rising until finding another resistance level.

The resistance area tries to restrict the price from going up. Sellers are expected to enter the market in sufficient numbers to prevent further increases in prices, the buying interest has decreased, supply will overcome demand but Once the resistance area is broken, it often becomes a support level for future price action.

Extreme Area

What are Extreme SNR levels?

Advance Support and Resistance levels, Tutorial 

 

Type of Support and Resistance

Predictive vs Reactive Support and Resistance

Predictive support and resistance are often outline areas where price has not actually been. They are formed based upon current price action that thorough analysis is now predicting future price action. Predictive Support and Resistance methods include Fibonacci, Elliot Wave, Pivots, Trendlines, and Moving averages.

Reactive Support and Resistance are the opposite they are formed directly as a result of price action or volume behavior. They include Volume Profile, Price Swing lows/highs, Open Gaps and open high low close of the market. 

Both Predictive and Reactive Support and Resistance methods have their own advantages and form an important part of any Support and Resistance based trading strategy.

Support and resistance levels can be identified by trend lines, horizontal levels. Some traders believe in using calculated pivot points. The more often a support and resistance level is touched and tested(bounce back), the more significance is given to that specific level.

If a price breaks a given support level then it will become a new resistance level. The same story goes for a resistance level.

How to draw Support and Resistance video tutorial click here 

NOTE- Psychologically levels near round numbers(whole number) often work as support and resistance, i.e levels ending with 0, 00, 000, 0000, etc.

Often we will see strong support and resistance at key whole numbers, and once these levels are penetrated than this often leads to heavy buying and pushing prices even further. Amateur traders often tend to place trades at these key levels, and also putting stops, this, in turn, can create momentum in a continuation of the trend.

Whole Number Resistance level

Whole Number support and resistance video tutorial click here

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SUMMARY

• S&R are price points on the chart.
• Support is a price point below the current market price that indicates buying interest, Resistance is a price point above the current market price that indicateS selling interest.
• We will see strong support and resistance at key whole numbers.
• Extreme levels are strong enough to hold the market for longer duration and can be used for better trading opportunities.  

                                General risk warning: your capital is at risk

 

Keep learning, Keep practicing, stay connected to get all the information related to technical analysis, have a great day ahead, subscribe to get notified with new articles.

NOTE: This article is not investment advice.  

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