Support and Resistance Levels
Support and resistance basically shows you where price is likely to stall out and reverse or at least consolidate in a trade. You don’t want to be entering a call when price is starting to hit a resistance, because, while it could easily blow through the resistance, it could just as easily tank. You always want to have some type of support and resistance indicator on your chart. When you combine support and resistance with other indicators and patterns it is very reliable.
There are several ways to find support and resistance, but I will go over the most accurate and the most popular.
Price Action Support and Resistance:
When you’re using price action as support and resistance you are going to look for two points on the chart that you can connect. Most of the major s/r (support and resistance) is going to be horizontal, but you are also going to have diagonal support and resistance (forming channels and triangles). If you look at the chart above you can see that the price action just flowed around the support and resistance.
When I first started drawing support and resistance on my charts I had a hard time finding the major levels. To make it easier on yourself, just start out looking to the left and put a horizontal line on all the major tops and the major bottoms. After you finish drawing the lines, look for any lines that don’t have at least two touches and erase them. Now you can sit back and watch how price flows around your levels as time passes. When prices start breaking out, simply create new highs and lows in order to update your support and resistance lines when new tops and bottoms are formed.