Support and Resistance: Key Concepts Recap
In previous lessons, you explored how to trade using support and resistance. Let’s quickly revisit the key points you’ve learned.
Understanding Support and Resistance
When price rises and then pulls back, the highest point it reaches before reversing becomes a resistance level.
As the price moves up again, the lowest point it reached before bouncing back becomes a support level.
These levels reflect areas where buying or selling pressure may emerge again in the future.
Support and Resistance Are Not Exact
It’s important to remember that support and resistance are not precise numbers, but zones where price is likely to react.
To better identify these zones and filter out false breakouts:
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Use line charts instead of candlestick charts.
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Line charts display closing prices only, helping you focus on the market’s more consistent moves rather than temporary spikes.
Role Reversal: Support Becomes Resistance (and Vice Versa)
One of the key dynamics in price action is role reversal:
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When resistance is broken, it may act as new support.
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When support is broken, it may become new resistance.
This shift happens because traders often adjust their strategies once a key level is breached, creating a new area of interest around that price.
Trend Lines
Trend lines help you visualize the overall direction of the market.
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In an uptrend, draw the trend line beneath price, connecting the swing lows (support areas).
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In a downtrend, draw it above price, connecting the swing highs (resistance areas).
There are three basic types of trends:
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Uptrend – higher lows
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Downtrend – lower highs
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Sideways trend – price ranges between levels with no clear direction
Trend Channels
Trend channels are extensions of trend lines. You create them by drawing a second, parallel line to form a channel:
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Ascending Channel: Draw a parallel line to the uptrend line that touches recent highs.
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Descending Channel: Draw a parallel line to the downtrend line that touches recent lows.
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Horizontal Channel: Draw two horizontal lines across a flat range of support and resistance.
These channels help you identify potential buy and sell zones within trending markets.
How to Trade Support and Resistance
There are two common strategies for trading around support and resistance levels:
1. The Bounce
In this approach, you wait for the price to react to a support or resistance zone before entering a trade.
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Don’t place your order right on the level hoping it holds.
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Instead, look for confirmation—such as a price bounce—before executing the trade.
This helps you avoid entering during sudden breakouts that cut through levels quickly (aka trying to catch a falling knife 🔪).
2. The Break
There are two ways to approach a breakout:
Aggressive Approach:
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Enter the trade immediately after price breaks through a key support or resistance level with strong momentum.
Conservative Approach:
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Wait for the price to pull back to retest the broken level, then enter after it shows signs of holding that level as new support or resistance.
This method reduces the risk of entering a false breakout, but may cause you to miss trades if the price doesn’t pull back.
Final Thoughts
Support and resistance—whether horizontal levels, trend lines, or channels—are fundamental tools in technical analysis.
By combining these concepts with strategies like bounces, breakouts, and pullbacks, you can make more informed, disciplined trading decisions.