What is support and resistance on a chart

What are support and resistance levels

The Support and Resistance (S&R) levels on a price chart are areas where there is more buyers demand than sellers (Support) and the Resistance levels are where there is more sellers demand than buyers.

So the support price is a price at which one can expect more buyers than sellers. Likewise, the resistance price is a price at which one can expect more sellers than buyers. No doubt, the most highly discussed attributes of technical analysis, why? Resistance levels act as barriers where it prevents the price of an asset from getting pushed up and likely the support level preventing price from dropping further.

Key Takeaways:

> Traders use support and resistance levels to find points or levels on a chart where the probabilities favour a pause or reversal of a prevailing trend;
> Support levels occurs where a downtrend is expected to pause due to a concentration of demand;
> Resistance levels occurs where an uptrend is expected to pause temporarily due to a concentration of supply;
> Market psychology plays a major role as traders and investors observe the past and react to the changing conditions to anticipate future market movements;
> Support and resistance areas can be identified on charts using few methods, candle sticks, previous levels; fibonacci, trendlines and moving averages.


How do we work out important support and resistance levels on a chart

1st method, we use previous price action.
An example of how support gets broken through and it flips into resistance. Explained in a few streams, it is best to watch them all because this is core fundamentals (base knowledge).

If you observe the levels, they are not perfect, that’s because price goes above or below the previous level to hunt Stop Losses. Another example blow has no trend, just sideways ranging but still defined by previous resistance acting as support. 

This next example with a sloping trendline, demonstrates when support is broken, it should flip to resistance.  Hence same goes for a resistance trendline when broken through should flip to support.

Another example, Vechain. Supporting Trendline flips into resistance. Note the number of touches. Any supporting TL with 4 clear pullback touches makes it a strong resistance.

At times, you will see no backtest of the supporting trendline because of the structure of the formation its related too. This is a clear bear-flag triangle with downward trend. we can see the touch points for support and resistance so one is given clues to swing trade this range.

The following example is complex for supporting trendline due its orientation. However the process still works where we have a clear supporting TL (red dots) and on the backtest, it becomes resistance before it proceeds to go down. The significance of the rejection is 2 fold. 1st is the previous horizontal support (red horizontal line) and its confluence with the supporting TL as mentioned. The combination makes it a good rejection point. That’s why we insist to have confluence with other elements on a chart before taking the trade. 


How do we work out important support and resistance levels on a chart

5 methods to map out support and resistance (S&R) levels on a price chart:

1) Previous price action ( generally on the 4 hourly, daily, weekly and monthly candle sticks);
2) Using Fibonacci retracement and extension tool;
3) Using moving averages such as 10, 20, 50, 100 and 200 SMA or EMA; 
4) Indicator tools such as CPR, logarithmic curve, etc

* The video below demonstrates how to spot support and resistance levels and what determines it >

The below demonstrates how a moving average has continuous confluence as a supporting level. If it works, go with it until it doesn’t. We also combine MA’s with previous support and resistance levels for future price action as levels of support and resistance, and in this case, combined with Fibonacci.

Here is a chart where we use the Candle sticks to find the macro levels of support and resistance (on BTC)

PRACTICAL EXERCISE – Find support and resistance levels

Using Candle sticks to find support and resistance levels

> 1. The purpose of these 2 videos is to make you pay attention to the methodology applied here;
> 2. We have 2 separate videos that demonstrate how we find support and resistance using candle sticks;


B) Using Fibonacci levels to find support and resistance levels

The video here and a few others will demonstrate how we use fibonacci to not only find support and resistance but also levels to sell or take profit from.

Note: With YouTube, you can select 1080p quality.