Nothing is more noticeable on any chart than support and resistance levels. These levels stand out and are so easy for everyone to see! Why? Because they are so obvious.
As a matter of fact, support and resistance trading is the core of price action trading.
The key to successful price action trading lies in finding effective support and resistance levels on your charts.
Now, in here, I talk about 3 types of support and resistance levels and they are:
- The normal horizontal support and resistance levels that you are probably most familiar about.
- Broken support levels become resistance levels and broken resistance levels become support levels.
- Dynamic Support and Resistance Levels
Now, let’s look at each in much more detail.
Horizontal Support and Resistance Levels
These are fairly easy to spot on your charts. They look like peaks and troughs.
The chart below is an example and shows you to trade them:
How To Find Horizontal Support And Resistance Levels On Your Chart
- If price has been going down for some time and hits a price level and bounces up from there, that’s called a support level.
- Price goes up, hits a price level or zone where it cannot continue upward any further and then reverses, that’s a resistance level.
So when price heads back to that support or resistance level, you should expect that it will get rejected from that level again. The use of reversal candlestick trading on support and resistance levels becomes very handy in these cases.
Significant Support & Resistance Levels
Not all support and resistance levels are created equal. If you really want to take trades that have high potential for success, you should focus on identifying significant support and resistance levels on your charts.
Significant support and resistance levels are those levels that are formed in the large timeframes like the monthly, weekly and daily charts.
And when price reacts to these levels, they usually tend to move for a very long time.
Here’s an example of NZDUSD that hit a resistance level on the monthly timeframe and made 1,100 pips move down to the next significant support level and price can now be seen bouncing up from that support level:
Now, here’s the technique I use to trade setups that happen in larger timeframes:
I switch to smaller timeframes like the 4hr & the 1hr, 30min, 15min and even the 5min and wait for a reversal candlestick signal for my trade entries. This is so that I can get in at a much better price level as well as reducing my stop loss distance.
That’s what’s multi-timeframe trading is all about.
Support turned Resistance Level And Resistance Turned Support Level
Now, the next on is this thing called Support turned Resistance Level And Resistance Turned Support Level.
There are many traders that don’t realize that usually, in a downtrend, when a support level has been broken to the downside, it often tends to act as a resistance level. Here is an example shown on the chart below:
So when you see such happening, you should be looking for bearish reversal candlestick to go short. As a matter of fact these “R’s” are the upswings in a downtrend.
Similarly, in an uptrend you will also see such happening where Resistance levels get broken and when price heads back down to these, they now will act as support levels…Here’s an example:
Look for bullish reversal candlestick around these type of resistance turned support levels as your signal to buy.
Can you see how the need for using other indicators is diminished once you understand how easy is to spot such trading setups like these?
Keep training your eye to see these through practice and your trading will improve by a wide margin.
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