Support and Resistance

Support is a price level where buying interest tends to emerge, preventing further decline. Resistance is where selling pressure tends to emerge, preventing further rise. These levels form from prior highs and lows, round numbers, and psychological levels.

Support and resistance form from: 1) Previous swing highs and lows. 2) Round numbers (1.1000, 150.00). 3) Areas where price has reversed multiple times. 4) Moving averages and trend lines. The more times price tests a level, the stronger it becomes.

To identify key levels: Start with obvious swing highs and lows on your chart. Mark round numbers (1.1000, 1.2000 for EUR/USD; 150.00 for USD/JPY). Look for confluence—where a round number aligns with a prior high or low. Levels that have held multiple times are stronger than those tested once.

Buy near support, sell near resistance. Wait for confirmation—a bounce or rejection candle. Breakouts above resistance or below support can signal new trends. Failed breakouts (fakeouts) often reverse sharply.

Always wait for a confirming candle before entering. Place your stop loss slightly beyond the level (support or resistance). Avoid trading in the middle of a range—wait for price to reach a level. Combine with candlestick patterns for stronger signals.