What is Support and Resistance?
Support: A price level where buying interest is strong enough to prevent further decline. Price tends to "bounce" off support.
Resistance: A price level where selling interest is strong enough to prevent further advance. Price tends to "reject" at resistance.
Why They Work
These levels form because traders remember past prices:
- Buyers who missed previous lows want to buy at support
- Sellers who missed previous highs want to sell at resistance
- Stop-losses cluster around these levels
Identifying Key Levels
Historical Highs/Lows
Previous peaks and troughs often become future S/R.
Round Numbers
Psychological levels like $100,000, $50,000 attract orders.
Moving Averages
200 SMA, 21 EMA often act as dynamic S/R.
Volume Profile
Price levels with high historical volume.
Trading S/R Levels
Bounce Strategy
- Buy at support with stop below
- Sell at resistance with stop above
Breakout Strategy
- Buy when price breaks above resistance
- Sell when price breaks below support
Role Reversal
- Broken resistance becomes support
- Broken support becomes resistance
Strength Indicators
Stronger levels have:
- Multiple touches without breaking
- High volume at the level
- Confluence with other indicators
- Longer timeframe significance
Common Mistakes
- Treating S/R as exact prices (they're zones)
- Ignoring context (trend direction matters)
- Not using stop-losses
- Fighting strong breakouts
- Over-relying on S/R alone