Support and resistance are terms for two respective levels on a price chart that appear to limit the market’s range of movement. The support level is where the price regularly stops falling and bounces back up, while the resistance level is where the price normally stops rising and dips back down.
To draw a accurate support and resistance on the chart you must keep in mind the following things:
- Identify at least 3 price action points
- Align the price action zones
- Fit a horizontal line
S&R can be used to identify targets for the trade. For a long trade, look for the immediate resistance level as the target. For a short trade, look for the immediate support level as the target.
Along with an accurate levels try to look for different candlestick pattern that can act has confirmation for your trade.
Support and Resistance
Big Idea: To most investors/traders, support and resistance levels are the number 1 most commonly used price action tool for gauging when to enter and exit trades. It is also one of the easiest indicators to see even without having to put much effort into spotting them on a chart.
Support Zones
Support zones, by definition, are areas or price points that act as a level of demand for buyers. In other words, when the price of a certain pair/stock/crypto comes down to touch a level of support, it is an incentive for buyers to step in for the chance of price recovering to the upside. An important thing to note: if this indicator is easy to spot, then it is likely that most traders will spot the same thing, and that will make your trades more accurate in both the short and long term.
Resistance Levels
Resistance levels, however, work in the same way, just vice versa. A recurring theme in business and economics is supply and demand. Support acts as a level of demand for buyers to want to get in while resistance acts as a level of supply. Basically, it means there is less demand for this pair at a higher price (the trade looked more attractive at a lower price). This also means that a level of resistance will be hard to beak and could cause price to fall back to support. Although any kind of indicator isn’t 100% accurate, support and resistance is still a great way to gauge entries and exits.
Key Takeaways
-Support levels act as areas of demand
-Resistance levels act as areas of supply
-One of the most commonly used tools in trading is support and resistance
-There isn’t a perfect way to trade, but these setups help
-Practice risk management to protect your account!
