HomeLatest PostsWhat is Support and Resistance? | A Definitive guide with 2 sample...

What is Support and Resistance? | A Definitive guide with 2 sample set-ups

-

Foreword:

Support and resistance levels are a critical part of trend analysis because they are used to make specific trading decisions. The fact that these levels flip roles between support and resistance can be used to determine the range of a market, trade reversals, bounces, or breakouts. These levels exist due to the influx of buyers and sellers at key junctures.

Support and resistance levels can be drawn using a variety of technical indicators such as Moving averages, horizontal levels, trendlines, etc. (which are freely available on TradingView). These levels are used to indicate price points where the odds favour a trend pause or reversal.

This post will shed some light on these questions:

1. What is a support level?
2. What is a resistance level?
3. What is their importance?
4. When & where to place Buy/Sell orders?

Please remember this is an educational post to help all of our members better understand various concepts used in trading or investing.

Support:

Support is a zone where the price tends to find a cushion as it falls or it is a price level at which a downward trend is anticipated to pause due to a concentration of demand. In general, the price is more likely to “rebound” from this level rather than pierce through it. However, once the price breaks down from this level, it is likely to continue falling until meeting another support.

Illustration:

Support trading

Exhibit 1:

Support trading

Exhibit 2:

support trading

Resistance:

It is a zone where the price tends to find resistance as it rises. In general, the price is more likely to “bounce back down” from this level. However, once the price pushes above this level it is likely to continue rising until it meets another resistance.

Illustration:

Resistance trading

Exhibit 1:

Resistance trading

Exhibit 2:

Resistance trading

Role reversal/Change of polarity:

A resistance level after a successful breakout turns into support and a support level after a breakdown turns into resistance. This is known as “Change of Polarity” and the zone is called a “Flip zone”.

Illustration:

flip zone trading

Exhibit:

Support and Resistance

Sample trade setups using support and resistance:

1. Buying the support

If after being rejected several times by the resistance, the price finally manages to break out. The right course of action can be to wait for a successful retest of this level, before going long. This is done in order to avoid fake breakouts/bull traps.

Support and Resistance

2. Selling the resistance

If after being rejected several times by the support, the price finally manages to break down. The right course of action can be to wait for a successful retest of this level, before going short. This is done in order to avoid bear traps.

Support and Resistance

Conclusion:

A zone keeps on flipping roles between support and resistance. It serves as a support at times and a resistance at others. As a result, these zones should be regarded as possible support or resistance zones, as there is no guarantee that they will operate as desired zones.

Pro Tip:

Since there is an influx of buyers and sellers at the support and resistance level , hence there is a lot of liquidity around these points. Therefore, it is not wise to place orders close to these levels. Always keep a buffer.

Important links:

image_pdfDownload PDF
close

🤞Want to be a better trader?

We don’t spam! Read our privacy policy for more info.

close

IT’S HERE! DON’T MISS OUT!

Learn the Art of

Trading!

Subscribe to our newsletter!
Get all the new content delivered to you.

We don’t spam! Read our privacy policy for more info.

Rajat Kumar Singhhttps://tradingwick.in
Hi, my name is Rajat and I have an immense love for charts. I hold a Bachelor’s in Engineering in IT and am currently working as the community manager (India) for TradingView. Join me in my journey to become a better trader! ❤️

LATEST POSTS

How do different traders see the price?...

One of the most important questions to ask yourself when you are learning to trade is "How do different...

Bearish market structure | Best guide with...

Before we study about bearish market structure, let us understand the basics of market structure. What is Market structure? Market structure...

Bullish market structure | Best guide with...

Before we study about bullish market structure, let us understand the basics of market structure. What is Market structure? Market structure...

What is Market structure? Best guide with...

Market structure is one of the most undervalued topics in trading. People don't spend enough time learning about it....

Follow Me

600FollowersFollow
396FollowersFollow
1,080SubscribersSubscribe

Most Popular