Support And Resistance Levels

While support and resistance levels do not form a pattern in trading, it is worth including such a subject into this chapter as properly spotted, they can be a valuable tool for traders.

A great way of identifying support and resistance levels is to try to look on the left side of a chart on higher time frames, ideally higher than one hour chart, and spot past consolidation areas. For example, if you are looking for bearish price action, you are a bear and want to see lower prices, then what you need to do in order to see where price might find some support and might try to correct a bit, you look on the left side of the chart and search for areas where price consolidated on the move to the upside. If you are an Elliott Waves trader, than look at the previous move to the upside corrective waves, namely 2nd and 4th waves areas to provide support also on the way to the downside. The same concept can be used when trying to identify resistance areas, and in this case you look for consolidation areas of a previous leg lower to offer resistance on the move back up. The recording that comes with this chapter deals with examples on both cases explained above.

Another way to look for resistance and support levels is by using the Fibonacci retracement tool, which is presented in details on the third chapter of this manual. If you are looking for price to retrace a recent move in order to get a better entry level on your trade, then just by taking a Fibonacci retracement tool from the lows to the highs and you will have the areas that might offer support/resistance: 38.2%, 50%, 61.8% retracement of previous wave. For more details regarding Fibonacci please check Chapter 3 of this manual.

The most important thing to remember when using support and resistance levels is that once a support area/level is broken, than it usually becomes resistance. And the opposite is true as well. Once a resistance area/level is broken, than it usually becomes support.