Support and Resistance Levels: What to Know and How to Get Started

What is Support and Resistance Levels, Exactly?

Support and resistance levels are areas where price action has reacted in the past history, and it may react the same in the future.

How to Identify Support and Resistance Levels

To identify support and resistance levels, you have to see if price has reacted the same between 2 to 3 times.

Depending on your trading style, the bigger timeframes such as the 4 hour and daily timeframe are the best timeframes to identify support and resistance levels.

The bigger the timeframes, the stronger the support and resistance levels are.

Identifying Resistance Levels

A resistance level can be identified when price action rejects on a certain price area multiple times in the past.

This is an indication that, buyers have closed their positions and sellers have opened their long positions.

Identifying Support Levels

A support level is when price action bounces on a certain price area multiple times in the past.

This is an indication that, sellers have closed their positions and buyers have opened their long positions.

Why You Need to Mark Support and Resistance Levels

There are 3 reasons why it’s important to markdown support and resistance levels.

1. Identifying Future Potential Opportunities

Identifying support and resistance levels are important because if price returns to those price levels, then their’s a high chance that the same reaction can happen in the future.

Identifying support and resistance levels on bigger timeframes are even more important as they can be major reversal on the smaller timeframes.

2. Identifying Market Direction

Identifying support and resistance levels combine with price action can you give you a better understanding of the what the trend of a stock is.

If price action breaks above resistance levels, it can be identified as continuation to the upside, as buyers have overcome the sellers.

The same applies for support levels. If price action breaks below support levels, it can be identified as a continuation to the downtrend as sellers have overcome the buyers.

Trading with the trend is your friend.

3. Identifying Liquidity

Support and resistance levels are considered liquidity areas. This means that support and resistance levels are areas where buyers and sellers will quickly execute their order to buy or sell a stock.

Conclusion

Marking down support and resistance levels are extremely important because it will give you a clear picture of the trend of a stock.

But finding support and resistance levels are not enough, to depend on, you’ll need to combine it with supply and demand zones to give you more conviction before entering a trade.

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Frequently Asked Questions

Should I Buy at Support or Resistance?

You should not buy right away when price action taps into support or resistance. If price action taps into those levels, you should look at the smaller timeframes and see if price will reverse to an uptrend or downtrend. Once confirmation has been shown, you can take action to execute your trade.

What Is the Best Indicator For Support and Resistance in Tradingview?

One of our favorite indicators from TradingView is a custom script called ATRvsDTR + ADR Zone + SSS50%.

This TradingView indicator is a great indicator for day traders. It marks on your smaller timeframes a upper ADR zone which can be a potential as a resistance level, and a lower ADR zone which can be a potential support zone.