Support and resistance are the foundation of technical analysis. Every price movement on a chart respects these invisible levels. Master them, and you'll know exactly where to enter, exit, and place stop losses with surgical precision.
📊 What Are Support and Resistance?
Support: A price level where buying pressure is strong enough to prevent further decline. Think of it as a "floor" that price bounces off.
Resistance: A price level where selling pressure is strong enough to prevent further rise. Think of it as a "ceiling" that price can't break through.
💡 Key Principle: Support and resistance exist because of mass psychology. When thousands of traders remember a price level where they bought or sold before, they act similarly when price returns there—creating predictable reactions.
🔍 How to Identify Support and Resistance Levels
1. Horizontal Levels (Most Common)
Look for price areas where the market has reversed multiple times. The more times price bounces off a level, the stronger it is.
- Swing Highs: Previous peaks = Resistance
- Swing Lows: Previous valleys = Support
- Rule of Thumb: Need at least 2 touches to confirm a level
2. Round Numbers (Psychological Levels)
Humans love round numbers. Levels like 1.2000, 100.00, or $50,000 often act as support/resistance because traders place orders there.
📈 Example: Bitcoin historically struggles at $20,000, $30,000, $40,000 because these psychological levels attract massive sell orders.
3. Moving Averages (Dynamic S/R)
The 50 EMA and 200 EMA often act as moving support/resistance in trending markets. Price bounces off these "moving floors."
4. Trendlines
In uptrends, draw a line connecting higher lows (support trendline). In downtrends, connect lower highs (resistance trendline).
⚡ The Two Core Trading Strategies
Strategy 1: Bounce Trading (Continuation)
- Setup: Price approaches a known support/resistance level
- Entry: Enter when price shows rejection (reversal candle)
- Stop Loss: Below support (for buys) or above resistance (for sells)
- Take Profit: Next major S/R level
Example: EUR/USD falls to 1.0800 support (tested 3 times before). Price forms a bullish pin bar. Enter long at 1.0810, stop at 1.0780, target 1.0900 resistance.
Strategy 2: Breakout Trading (Reversal)
- Setup: Price consolidates near a strong S/R level
- Entry: Enter when price breaks through with strong volume
- Stop Loss: Back inside the broken level
- Take Profit: Measured move (height of consolidation added to breakout)
Example: Gold stuck at $2,000 resistance. Breaks to $2,015 with huge volume. Enter at $2,020, stop at $1,995 (below old resistance), target $2,080.
🎯 Pro Tips for Drawing Levels
- Think Zones, Not Lines: S/R is rarely exact. Draw a zone (e.g., 1.0800-1.0820)
- Use Wicks, Not Bodies: The high/low wicks matter more than candle bodies
- Higher Timeframes Win: Daily S/R is stronger than 1-hour S/R
- Less is More: Only mark the most obvious, heavily-tested levels. Don't clutter your chart
- Adapt Constantly: When support breaks, it becomes resistance (and vice versa)
⚠️ Common Mistake: Drawing too many S/R lines. Your chart shouldn't look like a prison. Only mark levels price has respected 2+ times.
🔄 Support Becomes Resistance (Role Reversal)
This is one of the most powerful concepts in technical analysis:
- When support breaks, it becomes resistance
- When resistance breaks, it becomes support
Real Example:
- Price bounces off $100 support 3 times (strong floor)
- Finally breaks below to $95
- Price rallies back up and gets rejected at $100 (now resistance)
- $100 flipped from support to resistance
This happens because traders who bought at $100 (thinking it was support) are now trapped in losing trades. When price returns, they sell to break even—creating resistance.
📐 Combining S/R with Other Tools
Don't trade S/R in isolation. Stack confluences:
- S/R + Fibonacci: If 1.0800 support aligns with 61.8% Fib, it's ultra-strong
- S/R + Candlestick Patterns: Pin bar at support = high-probability trade
- S/R + Volume: Breakout with low volume = fake breakout (trap)
- S/R + Moving Averages: Support touching 200 EMA = double confirmation
📊 Track Your S/R Trades
Use TradeJournal to log every support/resistance trade. After 50 trades, you'll see which setups work best for you.
Start Journaling Free →⚠️ False Breakouts: The Trap
Not every breakout is real. False breakouts (fakeouts) happen when price briefly breaks a level, then reverses hard. This traps breakout traders.
How to Avoid Fakeouts:
- Wait for a candle close beyond the level (not just a wick)
- Look for volume confirmation on the breakout candle
- Use a retest strategy: Wait for price to break, pull back to test the level, then continue
💰 Real-World Trading Example
Scenario: EUR/USD Daily Chart
- Observation: Price bounced off 1.0500 support 4 times over 3 months
- Setup: Price approaches 1.0500 again, forms a bullish engulfing candle
- Entry: Buy at 1.0520 (above engulfing high)
- Stop Loss: 1.0470 (below support zone)
- Take Profit: 1.0700 (next resistance level)
- Risk/Reward: 50 pips risk, 180 pips reward = 1:3.6
Result: Price rallies to 1.0680, you exit with +160 pips profit.
🧠 Psychology Behind S/R
Why do these levels work? Because everyone is watching them.
- Institutional traders place massive orders at key levels
- Retail traders remember where they bought/sold before
- Algorithms are programmed to react at these levels
When thousands of traders agree on a level, it becomes a self-fulfilling prophecy. This is why round numbers and heavily-tested levels are so powerful.
✅ Support & Resistance Checklist
- ✅ Identify at least 2 previous touches to confirm S/R
- ✅ Use higher timeframes (4H, Daily) for stronger levels
- ✅ Draw zones (ranges), not exact lines
- ✅ Wait for confirmation (reversal candle or breakout close)
- ✅ Check volume on breakouts (high volume = real, low = fake)
- ✅ Remember role reversal (broken support becomes resistance)
- ✅ Journal every S/R trade to identify your edge
🚀 Next Step: Read our guide on Fibonacci Retracement to combine Fib levels with S/R for even more accurate entries.
Remember: Support and resistance are timeless. They worked 100 years ago, they work today, and they'll work 100 years from now. Master them, and you master the market.