Support & Resistance: The Foundation of Price Action
Support and resistance are the cornerstone of technical analysis. These key levels show where buying and selling pressure converge, creating zones where price is likely to react. Master these concepts to time your entries, set better stop losses, and identify breakout opportunities.
What Are Support and Resistance?
Support is a price level where buying pressure is expected to overcome selling pressure, causing price to bounce higher. Think of it as a floor that prevents price from falling further.
Resistance is a price level where selling pressure is expected to overcome buying pressure, causing price to reverse lower. Think of it as a ceiling that prevents price from rising further.
💡 Key Concept
Support and resistance are not exact prices but zones. Price rarely respects levels to the penny—think in terms of areas rather than precise lines.
These levels form because of market psychology. When price approaches a previous high or low, traders remember what happened last time and position accordingly, creating self-fulfilling prophecies.
How to Identify Support and Resistance
Look for areas where price has repeatedly bounced or reversed. The more times price respects a level, the stronger it becomes.
Historical peaks and troughs often act as future support/resistance. Old resistance becomes new support after a breakout.
Psychological levels like $100, $50, $1000 attract orders. The rounder the number, the stronger the level.
The 50, 100, and 200-day moving averages often act as dynamic support/resistance levels.
Volume Confirmation
Strong support/resistance levels typically show high volume when price approaches them. This indicates many traders are watching and trading these levels.
Types of Support & Resistance Levels
1. Horizontal Levels
These are the most common and reliable. They're drawn horizontally at price points where the market has repeatedly reversed.
2. Trendlines
Diagonal lines connecting successive highs (resistance) or lows (support) in a trend. They show dynamic levels that change over time.
3. Fibonacci Levels
Based on the Fibonacci sequence, these levels (23.6%, 38.2%, 50%, 61.8%) often act as support/resistance during retracements.
4. Pivot Points
Calculated using the previous period's high, low, and close. Popular among day traders for intraday support/resistance.
🎯 Pro Tip
The strongest levels are where multiple types converge. For example, a horizontal level that aligns with a Fibonacci retracement and a moving average.
How to Draw Support & Resistance Lines
Step-by-Step Process
- Zoom out: Start with a higher timeframe (daily or weekly) to see the big picture
- Identify obvious levels: Mark areas where price has bounced multiple times
- Connect the dots: Draw horizontal lines through the most touches
- Use zones, not lines: Extend lines into zones 1-2% wide to account for market noise
- Clean up: Remove weak levels that only have 1-2 touches
- Validate with volume: Confirm strong levels show volume spikes
Tips for accuracy:
- Use candlestick bodies more than wicks for cleaner levels
- The more touches, the stronger the level (3+ touches ideal)
- Recent levels are generally more relevant than old ones
- Adjust lines as new data comes in—markets evolve
Trading Strategies Using S&R
Strategy 1: Bounce Trading
Buy at support, sell at resistance. This works best in ranging markets.
Entry: When price touches support + bullish confirmation candle
Stop Loss: Just below support zone
Target: Next resistance level
Strategy 2: Breakout Trading
Trade the break when price pushes through strong levels with volume.
Entry: After close above resistance + volume spike
Stop Loss: Below the broken resistance (now support)
Target: Measure the previous range and project it upward
Strategy 3: Role Reversal
Old resistance becomes new support after a breakout (and vice versa).
Entry: When price retests broken resistance as support
Stop Loss: Below the new support level
Target: Next major resistance zone
⚠️ Risk Management
Always use stop losses. Support and resistance can fail, especially during news events or strong trends. Never risk more than 1-2% of your account on a single trade.
Breakouts vs. Fakeouts
Not every break of support/resistance leads to a sustained move. Many are "fakeouts" designed to trap traders.
Signs of a Real Breakout:
- Volume confirmation: Significantly higher volume on the break
- Strong close: Candle closes well beyond the level, not just wicks through
- Follow-through: Next candle continues in breakout direction
- Retest holds: Price comes back to test the level and bounces
Signs of a Fakeout:
- Low volume: Break happens on below-average volume
- Quick reversal: Price immediately falls back through the level
- Long wicks: Candles show rejection wicks at the breakout point
- No follow-through: Next candle fails to continue the move
🎯 Pro Tip
Wait for a retest! After a breakout, price often comes back to test the broken level. If it holds, that's a high-probability entry with a tight stop loss.
Common Support & Resistance Mistakes
Drawing Too Many Lines
Chart paralysis is real. Focus on the most obvious, strongest levels. Quality over quantity.
Ignoring Timeframe Context
A level on the 5-minute chart means little if it contradicts the daily chart. Always check multiple timeframes.
Expecting Perfect Touches
Markets are messy. Price will overshoot and undershoot levels. Think zones, not exact prices.
Not Adapting to Market Conditions
S&R works best in ranging markets. In strong trends, price can slice through levels like butter.
Key Takeaways
Support and resistance are zones, not exact prices—allow for some wiggle room
The more times a level is tested, the stronger it becomes (until it breaks)
Volume confirms the validity of levels—high volume = strong level
Old resistance becomes new support after a breakout (role reversal)
Always wait for confirmation—don't buy/sell just because price hits a level