Support and Resistance
Support refers to a level where there is some indication of surplus buyers coming to buy and likely stop the price from going down. The inverse of this is true for Resistance, which refers to a level where sellers won’t let the price go higher. I’ve told you earlier how price moves as buyers and sellers negotiate among themselves. Support and Resistance are nothing but the values where both parties have had a negotiation before.
(Let’s eat Chinese this week? No, I had told you before I wanted something Indian. Let’s take the price below 100? No, we already had a bounce from that level)
But these levels are not set in stone. Prices often stop at random levels. Below is how Support and Resistance levels look:
From trading perspectives, the price would either break or bounce from a level.
There is another thing to note that S&R levels are not always exact. They are more of a zone. You will get caught up in a losing trade if you considered them to be exact, as there can be false breakouts.
Let’s discuss some quirks of S&R levels. Firstly, when price breaches a Support, it could become a Resistance later on and vice versa. So these levels are interchangeable once price moves across them.
The more price “respects” an S&R level, the stronger it is. By respect, I meant touching but not breaching the level. The strength of the price move after breaching an S&R level is often related to how strong the level was.
A pro tip: Trading S&R as a standalone feature is probably not the best idea. You are better off having a bigger reason for the price to go in some direction and let the S&R level be an entry or exit point.