Lesson 7: Support and Resistance LevelsHello Traders,
After being busy with work and all, I am finally back with yet another lesson. There are many traders out there who still do not understand the significance of support and resistance levels. So today we are going to go over that in detail. Note that this lesson will be only covering the horizontal support and resistance levels. I will have another lesson for the diagonal support levels later on.
This concept has been used by a lot of traders to mark price levels and borders for a price to prevent it from pushing it any further, or to even manipulate the price. You must be thinking that support and resistance is as simple as drawing a line where the price has touched more than a few times, but let me tell you it is not as easy as it looks. There are different ways to draw the support levels, and you will understand them all in this lesson which I am very sure about. So lets begin.
First, lets look at the topics I will be covering in this lesson:
1. What is support?
2. Where is support found?
3. What is resistance?
4. Where is resistance found?
5. Methods to draw support and resistance levels?
1. What is support?
In simple words, a support is formed when a price has been in a downtrend because of an increase in the supply, and suddenly we see an increase in demand due to which the price bounces upwards from the current trend. This increase in demand (if strong enough) stops the price from moving further down. It is considered a strong support level if the price has bounced from the same price/zone level several time in the past depending on the time frame you use.
In the image below we can see how a strong support level is formed on the 4H chart for BTC:
2. Where is support found?
Unlike the above image where the price is currently trending near the support level, support is usually found below the current price. Note that it is best to draw multiple support levels, because support levels are not always reliable. Having a support level doesn't mean that the price cannot go further down, which is why drawing multiple support levels helps as when price breaks one support level, it is very much likely to go touch the next support level below. Lets look at an image below where you can see TRX currently trending where the blue line is, and the red line is indicating the next support level. If the price goes on to break the first support level at 592, it is likely to go to the next support level at 490. However, it can also be a trade opportunity at the first support levels, if the price bounces at that support level.
See the image very carefully. Now, if the price goes below the 592 support level, that level will start acting as a resistance level when the price climbs its way up. We will go over that in detail.
Continue reading below....
