Support and Resistance are like a floor and ceiling while the price is located between
them. The main objective is to help us knowing price trends, chart patterns and determining whether the trend is likely
to continue or reverse. Support and Resistance exist because traders have memories. They tend to repeat actions took place
in the past.
Support is a price level where buyer's action is strong enough to interfere or reverse a downtrend. (Buyers
It can be said, when a downtrend hits support zone, it bounces and makes a pause or reversal depends on support's strength.
Support can be drawn by a horizontal (or near horizontal) line connecting a few price bottoms. Support also helps traders
to decide when to buy.
Resistance is a price level where seller's action is strong enough to interfere or reverse an uptrend.
(Sellers overcome buyers)
It can be said, when an uptrend hits resistance zone, it will go down and makes a pause or reversal depends on resistance's
Resistance can be drawn by a horizontal (or near horzontal) line connecting a few price tops. Resistance also helps traders
to decide when to sell.
Minor support or resistance causes trends to pause, while major support or resistance causes them to reverse
How to draw support and resistance lines ?
Its better to draw support and resistance lines by drawing horizontal lines through through lower and upper edges of
congestion areas rather than extreme points, as extreme points only represent panic action of amateur traders.
If a downtrend is able to break support line it will become a new resistance. The same thing happens to the otherside, if
an uptrend can break resistance line, it will change role to support line.
Factors Affecting Support and Resistance Strength
Support or Resistance's Length The longer the time or the number of hits it got, the stronger it is. For example, a week's support or resistance
creates a minor support or resistance, a month's support or resistance provides an intermediate
level support or resistance, while 1 year's range will become a major / strong support or resistance.
But you should keep in your mind that there is a point, where
these levels are gradually become weaker when they get older. This is caused by fading people memories along with time.
Support or Resistance's Height The wider support and resistance zone, the stronger it is. A wide congestion zone between support and resistance acts
like a higher barrier, and serves as a stronger level. The strength of this zone can be calculated by a percentage of current
Support or Resistance's Trading Volume The higher the volume in a specific support and resistance zone, the stronger it is. A higher trading volume in
a support or resistance zone, it means more traders involved in that zone. This scheme represents a stronger level of
support or resistance area.
Confirming Support Resistance Breakouts
Be aware of false breakouts from support and resistance. False Breakouts are confirmed by low trading volumes and divergences made by technical indicators and prices. True breakouts are
confirmed by large trading volume and new extreme prices (highs or lows) reached in the direction of the trend.
Most of market movements stay in sideways and most of sideway markets cause false breakouts.