How To Find Support and Resistance Levels?
If you ever wondered how to find Support and Resistance levels on a price chart and how to draw them in correctly check out my video where I’m figuring it out myself!
First things first, what actually is Support and Resistance?
In trading, support and resistance levels are key areas where the price of an asset is likely to find support or resistance.
Example Support:
This is the monthly chart of the USD/JPY pair.
We are looking for an area where price was rejected several times in the past.
There should be at least 2 touch points.
The more touch points we have, the better.
I think we can identify this level here below where we have several rejections from this area.
Six rejections in the first area, six in the second and one here at the end.
Another more recent support area could be drawn here as we we have like 7 rejections in total.
Example Resistance:
If we zoom out here, I think we could define this area as a key resistance as price upwards movement was rejected here at this level several times.
And another more recent resistance area here. It eventually broke through which I think would be interesting to analyse later on, or in another video.
What happens when price brakes a certain support area? Well, support becomes resistance. As we can see by expending this support level to a previous date.
It is the same on the other side when resistance becomes support when price brakes through
So the key takeaways are that:
- Support and resistance are important levels because they can help us to identify areas where the price is likely to reverse or continue in its current direction.
- They are an important part of the technical analysis when making trading decisions.
- The most important thing to remember is that they are not exact levels, but rather areas where the price is likely to find support or resistance.
