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How To Draw Support and Resistance Levels Like A Professional
In my daily Forex commentary each day, I draw in the key levels of support and resistance that I feel are the most significant in the current market environment. It’s something that I’ve done for so long it really only takes me a few minutes to do now, it really is a very logical and simple task for me and it can be for you too.
Many traders make the process of drawing support and resistance levels a lot more difficult than it needs to be. After you have a general idea of how I draw my support and resistance levels, you should have no problem using that knowledge as a guideline to draw the levels yourself. We get tons of emails each week from traders asking how to properly draw support and resistance levels on their charts. Also, we get emails with chart attachments from traders who are clearly drawing far too many levels on the charts, thus complicating the process of price action trading and confusing themselves as well.
Today’s lesson is going to be a tutorial of how I draw my levels in the market. Basically, I’m going to take you guys on a ride through my brain (scary I know) as I decide where to draw support and resistance levels on some real-time daily charts. You can use this lesson as a reference until you feel comfortable enough drawing the levels on your own. Also, it will help you to make your own commentary each day of your favorite markets; writing down your analysis rather than keeping it all in your head is a good way to stay on track and make sure you have a clear plan for the week and day ahead. To get started, let’s clear up a few common myths about drawing support and resistance levels…
Common myths about drawing support and resistance levels:
Myth 1: You should draw every level you can find on your charts – Many traders fall into this trap, they end up taking an hour to draw on every little level they can find. What they end up with is a really messy chart that basically does more harm than good. You need to learn to draw only the significant levels on your charts, then you’ll have a useful framework to work from.
Myth 2: Your S/R (support and resistance) levels should always be drawn across the exact highs or lows of price bars – This is perhaps the biggest myth that traders have about drawing levels on their charts. Often times, support and resistance are more “zones” than exact “levels”, sometimes you will have a key level that is indeed an exact level, but more often than not we are going to be drawing our support and resistance lines midway through bar tails or even through the body of a bar sometimes. Point being, you don’t always have to draw the level exactly through the high or low of the bar. Note: if you are totally new and confused by some of the lingo here, please take some time to go over this candlestick tutorial before moving on.
Myth 3: You should go back really far in time with your levels – Unless you are a long-term buy-and-hold investor right now, you don’t need to go back more than about 8 months when drawing your levels. If you look at our free forex commentary you can see we really only focus on the last 3 to 6 months when drawing in the daily levels, and that goes for my own personal trading too. I am not sitting there trying to draw in levels from the last 5 years like some traders…you are wasting your time if you’re doing this.
OK! Now that we’ve cleared up those common myths about drawing S/R levels on your charts, let’s move on to some “meat”:
How I draw support and resistance levels on my charts:
Below are examples of how I would draw the relevant support and resistance levels on some of the major Forex pairs, Gold, Crude Oil and Dow Futures as they stand at the time of this writing. Above each chart is a brief explanation of why I drew the levels where I did.
Example 1: EURUSD DAILY CHART
Here we are looking at the current euro / dollar daily chart. You’ll note the red lines highlight the longer-term or “key” levels and the blue lines highlight the shorter-term or “near-term” levels. This is how all the examples will be in this lesson and hopefully it will make it easier for you to differentiate between what I often refer to as “key” levels from shorter-term levels that aren’t quite as significant.
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In this example, you can see this market is clearly in a trading range right now between about 1.3140-70 resistance and 1.2830 support. Those are what I would call the “key levels” on this current daily EURUSD chart. Within the range, we have some shorter-term levels that are still significant albeit less so than the key levels just discussed. Of special note are the two shorter-term resistance levels marked on the chart below. You will see that the one near 1.3070 is hitting a bar high from October 5 th , but also it’s going through the bodies and middle of the tails of the bars from October 17 th – 23 rd . This brings up a good point…a support or resistance level can be significant even if it isn’t exactly touching bar highs and lows. This is also seen at the key resistance of the range, note how the line through 1.3140 is not touching the exact highs on September 14 th and 17 th at 1.3171…this brings up the point that sometimes support or resistance is more of a “zone” than a strict / exact level. In this case the resistance of the current range is really a small zone of resistance from 1.3140 to about 1.3171 (more on support / resistance “zones” soon).
Also of note, there was an inside bar on October 18 th , and after the market broke down from that inside bar it tried to rotate back up to about where it broke down at, and this breakdown level acted as resistance and held the market off from advancing further, and then as we can see the market has since fallen away from that level. These are some of the more subtle things you need to learn about when drawing in your levels…especially shorter-term levels; that inside bar breakdown point held as a resistance, and often inside bar breakout points will act as support or resistance, even if it’s just for the short-term.
Example 2: GBPUSD DAILY CHART
Here’s a good exercise for you to work on: When marking support and resistance levels on your charts, mark the longer-term “key” levels first and then draw the shorter-term levels. This will work to give you a framework for the current market conditions and gives your analysis some routine as well.
One of the things I often write about is support or resistance “zones”, as often a support or resistance is not really an exact level but more of a zone. In the example below, we can see a very good example of a resistance zone that occurs between about 1.6270 and 1.6310.
“Key” support or resistance levels are generally levels that price rejected forcefully and that gave rise to a significant move up or down, or they can be levels that have contained or supported price many times. Whereas, shorter-term levels give rise to smaller movements and tend to break easier. We can see good examples of both in the GBPUSD daily chart below:
Example 3: AUDUSD DAILY CHART
In this example we are looking at the AUDUSD daily chart and we can see currently the market is in a large trading range between about 1.0612 and 1.0175. We classify 1.0612 as “key resistance” since it has caused significant turning points in the market and held on the last two tests. Similarly, 1.0175 is “key support” because it has led to significant turning points in the market and held on about the last 4 tests. The shorter-term level through 1.0410 is clearly significant, but again it’s not “quite” as significant as the two levels just mentioned. As you can see, some of drawing in your levels and deciding which is more important than the other can be left up to your own interpretation, but at the same time you should have a logical line of reasoning such as “this level has held price more times”, or “that level created a larger move”, etc.
Example 4: USDJPY DAILY CHART
In the USDJPY example below, we are looking at all “key levels” because I did not see any that I considered to be short-term levels. The reason being, every level I’ve drawn in has created a significant turning point. The USDJPY most recently has been breaking higher, and if the resistance near 80.37 gives way we will likely see another leg higher.
Of special note in this chart are the bar tails or wicks. Note how some of the levels are not drawn exactly at the bar highs or lows but rather through the middle portion of the tail. This is important, and it’s one of the myths I mentioned at the start of this lesson; you don’t always have to draw your S/R levels exactly at a bar high or low. In fact, it’s more important to have a lot of tails touching a level than it is to have a level exactly at two or three bar highs or lows. An example of this is the level at 78.79 in the chart below; note how I drew it through as many bar tails (or wicks) that I could, rather than moving it further up and just hitting the exact highs of a couple bars. Drawing your levels in this manner gives you a better reference point to look for signals from since you are getting closer to the mean or average turning point price in the market, so it’s basically a higher-probability level than a level that’s further out but exactly at a bar high or low. That’s not to say you will never draw S/R levels at exact highs or lows, because you will, a lot, but it just means you don’t always have to draw them that way and won’t always want to.
Example 5: NZDUSD DAILY CHART
In the NZDUSD chart below we want to take note of what I refer to as a “value area”. Now, what I mean by “value area” is basically just an area where it’s obvious that price “likes” to be. This is essentially just another word for consolidation, since an area of consolidation on a chart is essentially where a market has found “fair value”. These value areas typically act as support or resistance zones, and this means when price retraces back to them you can watch for price action trading strategies forming at them. You will also sometimes have existing support or resistance levels that basically run right through the center of a value area, showing about the middle of the value area, and we can see this clearly by the blue line in the chart below. In this specific NZDUSD example that blue value line would be a good support to watch for buy signals if price rotates lower soon.
Example 6: USDCAD DAILY CHART
The USDCAD daily chart below shows us a good example of the “value” concept that I discussed in the last example. Note how price formed that area of consolidation or “value” marked on the chart below, and then later price retraced back up to it and found resistance exactly at the center of the value near 0.9883 on October 3rd. Then, after price finally broke back above that value level it formed a price action setup after it retraced back down to it, as we can see an inside pin bar combo setup formed showing rejection of that same level.
So, here’s a very simple strategy for you; wait for a key level to break, then wait for price to retrace back to it and look for a price action setup entry trigger to form near the breakout level in the direction of the initial breakout.
Example 7: EURJPY DAILY CHART
We can see in the EURJPY chart below that it’s been in an uptrend since about the end of July. This uptrend has had some pretty large counter-trend retraces, which of course we need to mark with levels. We can see in the chart below the support levels and zones left behind by the different points in the market were the retrace ended and the uptrend resumed. Also, in a trending market like this, we can watch the previous swing points for price action signals as the market retraces back to them. For example, in an uptrend we can look for price action entries at the previous resistance / swing points in the market which turn into support after price breaks up past them. We can see a clear example of this in the chart below with the recent pin bar trading strategy that formed at the shorter-term support through 102.50 area, note that this level was previous resistance.
Example 8: XAUUSD DAILY CHART
In the Gold chart below, you can see I’ve gone back about 8 months in drawing in my long-term levels. This is about the farthest back I typically go when drawing in my levels on the daily charts. Again, longer-term “key levels” are those levels that clearly caused a significant change of direction in price and / or held strong on multiple tests across time. Shorter-term levels are those that caused less significant price direction changes and may be “newer” levels. You don’t have to get carried away drawing in too many of the shorter-term levels though, just use common sense and decide which are the most obvious and draw those in. If you put too many support and resistance levels on your charts you’ll end up with a messy chart that just confuses you and might even cause you not to trade because you think there are too many levels for the market to have to move through.
This brings me to a very important point you should remember: In an up-trending market, resistance levels will often break, and in a down-trending market support levels will often break. I say that because I get a lot of emails from traders telling me they can’t get a proper 1:2 or more risk reward ratio because there are too many support or resistance levels in the way. Well, you have to look at the market context that your trade setup has formed in and use some common sense and discretion…not every little level you find is significant.
Example 9: DJ30 DAILY CHART
In the Dow Jones futures chart below, we can see the current picture of key levels that are relevant for this market. Of special note, we can see how consistently these key levels hold as price retraces back to them. Knowing that price often bounces or repels from key levels is a very valuable piece of information. Indeed, a big portion of my trading theory revolves around waiting patiently for an obvious price action setup to form at a key chart level as the market retraces back to it. If you observe this chart for a few minutes, you’ll begin to see how accurate these levels are in rejecting, it really is uncanny.
Example 10: WTI DAILY CHART
In the example below, we are looking at the current Crude Oil chart. This chart shows us a very important lesson. Note the pin bar marked on the chart below, it was an obvious pin bar that showed forceful rejection of a key resistance level, and then the market chopped around about 6 days before finally moving lower. The most obvious stop loss placement on that pin bar would have been just above its high which was also the key resistance through $93.65 area. If you enter an obvious price action setup like that and you’ve placed your stop loss at a logical spot in-line with the existing market structure, there’s no reason to panic if the market moves against you and almost stops you out. This exact scenario was very likely in this Crude oil pin bar setup, and I know some traders who panicked when price moved against them. Had they just stayed in the market, their initial stops just above the key resistance would not have been hit and they would have made a killing. Lesson: trust your stops if you’ve placed them beyond a key support or resistance level or in another logical place.
I hope you now have a better idea of how I draw support and resistance levels on my charts and why I draw them where I do. I suggest you try drawing the relevant levels on your charts now according to what you’ve learned in today’s lesson. Also, follow my daily Forex commentary for a good daily example of how I draw the levels on a major market each day.
Determining where to draw your support and resistance levels is really not as difficult as many traders make it out to be. When in doubt, slow down and take a step back, ask yourself if a level your about to put on your chart makes sense and why. If it makes logical sense you should be able to easily explain why to someone who has no trading experience. For example, you might say “This level is important because it clearly caused price to make a significant change of direction recently”. If you just take a logical approach to drawing in your support and resistance levels you will save yourself a lot of time and frustration in the end. Don’t be one of those traders with so many lines on their charts you can’t figure out what’s happening. If you would like more help with drawing support and resistance levels and how to use them in combination with price action strategies, checkout my Forex price action trading course for more in-depth instruction.
(VIDEO) How to Properly Draw Support and Resistance Levels
The ability to properly draw support and resistance levels is one of the most basic skills every price action trader must have. It’s also the building block for everything that comes after it, including price action trading strategies like pin bars and inside bars as well as a proper risk to reward ratio.
Get it right and trading starts to become effortless. Get it wrong and your trading experience will most likely be a frustrating one.
In this lesson we’re going to define what a support and resistance level is, as well as why they form. We’ll also dive into how to properly identify these levels, and then we’ll finish things off with a few basic rules to trade by.
In short this lesson will help you keep your charts from looking like this…
And more like this…
A quick note before we get started. This lesson will only focus on horizontal support and resistance as I believe it to be the cornerstone on the topic of key levels.
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I’ll save trend lines for a later lesson as they have many different facets that deserve more attention.
What is a Support and Resistance Level?
A support and resistance level is simply a level in a market at which traders find a price to be overvalued or undervalued depending on current market dynamics. This creates a level in the market that can act as support or resistance depending on various factors surrounding each currency.
So that’s the “fancy” definition of a support and resistance level. Now for the price action trader’s definition…
A level at which we can look for price action buy or sell signals such as the pin bar. That’s really all we need to know. We aren’t concerned about why a level has formed. Instead, we’re focused on how important that level is relative to the surrounding price action. If it’s deemed to be an important (key) level that we want on our chart, we simply wait and watch for a price action buy or sell signal to develop.
Here is a great example of a support and resistance level in action.
What Causes These Areas to Form?
To understand why these levels form we have to go back to the supply and demand curve. I won’t spend too much time on this as the real benefit to support and resistance comes once you learn how to properly identify the levels.
Notice how in the supply curve below, the number of units for sale increases as price increases. To put this in trading terms – the higher the price, the more willing traders are to sell their positions.
The demand curve, on the other hand, is the exact opposite. As price increases the number of units desired decreases. This is because traders are less willing to buy in a more expensive market.
We can, therefore, label a support and resistance level as a point in the market where traders are more willing to buy or sell, depending on market conditions. This creates an area of tension between buyers and sellers, which often causes the market to change direction.
Here’s how that looks when it’s applied to a market such as GBPNZD.
Now that we have a good understanding of how and why these areas form, let’s take a look at how to properly identify them.
How to Draw Support and Resistance Levels
The first thing I want to mention about support and resistance levels is that they aren’t always exact levels. In fact, most often these “levels” are better thought of as areas on your chart.
It’s a common misconception that a key level has to line up perfectly with highs and lows. This couldn’t be further from the truth as most support and resistance levels have areas where the market failed to respect it as either support or resistance. This is the reason we use price action strategies like the pin bar as confirmation that a level is likely to hold.
I don’t know about you, but I learn best when I can see something in action. Which is why I created a video to show you how I go about drawing support and resistance on my own charts.
If you’ll notice, the support and resistance levels I drew in the video didn’t always line up exactly with highs and lows, nor did the market always respect them. But that’s okay.
It’s important to understand that although properly drawn support and resistance levels can be a powerful asset, they aren’t without flaw. But as I mentioned earlier, that’s where price action signals come in to help us determine the strength of a level prior to placing a trade.
One last point about drawing your support and resistance levels. You should always aim to achieve the most touches possible on either side of the level. This usually requires you to move the level up and down a few times until you can find the place where the market touches that level the most from both sides (as support and also as resistance).
Remember that these levels represent areas in the market where traders are more willing to buy or sell, which can mean a change of direction in the market. So by moving a level to a place that achieves the most touches on either side, you stand the greatest chance of catching the move if and when it happens.
Rules to Trade By
Here are a few simple rules to follow that will vastly improve your ability to identify key areas of support or resistance.
Use swing highs and swing lows in the market to your advantage
By using the highs and lows as a guideline to start drawing your support and resistance levels, you’re more likely to capture the “key” levels. These are the levels that you should be interested in as they are the most likely to produce a valid price action buy or sell signal.
Don’t worry if the highs and lows don’t line up perfectly
Remember that most levels are not going to line up perfectly with highs and lows. Instead of worrying about a level lining up perfectly with highs and lows, you should spend some time making sure the level is at a place in the market that achieves the most touches on either side of the level.
Focus on the major (key) levels in the market
These are the most obvious support and resistance levels and should be immediately visible. If you have to search long and hard for a level, it probably isn’t worth placing on your chart. By only focusing on key levels you’ll be in a much better place to actually trade a price action signal when one shows up.
Stay within a six-month window
You don’t need to go back five years to find support and resistance levels. Most of the levels that you will need are going to come from highs and lows that have occurred within the last six months. Feel free to travel back in time once you have the level drawn, but don’t think it necessary to look back more than six months to find great levels to trade.
That wraps up this lesson on how to draw support and resistance levels. I hope you now have a better understanding of how to approach these levels and also which levels are most important.
Just remember to not over-complicate things. Drawing support and resistance levels should be one of the easier and stress-free things you do as a price action trader. In fact, I’ll go so far as to say that if you find yourself expending a lot of energy to find these levels, you’re probably drawing more levels than you actually need.
Keep it simple and most importantly, have confidence in your abilities! One of the bigger mistakes you can make is to second guess whether or not you’ve drawn a level correctly. It’s okay to double check your work, but just remember that your first instinct is usually the right one.
How do you go about identifying support and resistance levels? Share your thoughts or methods in the comments section below.
I always make it a point to respond to comments, so leave your mark below and I’ll talk to you soon.
Leave a Comment:
HI JUSTIN ENJOYED READING YOUR SUPPORT/RESISTANCE MATERIAL WHEN I DRAW S/R I SWITCH TO A LINE CHART IS THIS A SOUND WAY OF DOING IT REGARDS MAL.PS I WOULD LIKE TO LEARN MORE ABOUT YOUR TEACHINGS.
Malcolm, it isn’t how I trade, but that doesn’t make it wrong.
Thanks for this educative and very enlightening post. However I wish to ask that if we are trading with the daily timeframe are we going to use the swing lows and swing highs of the higher timeframe to draw the support and resistance lines? Or is it the daily timeframe that we will use?
You’re welcome, Sam. That depends on what you feel more comfortable with. It will also vary depending on how far back the level goes. For example, if it spans several years, you’ll probably want to use the weekly chart.
Hy bennet i just want to know more about dynamic resistance and how to use it in the market
Really enjoyed the video and description! Hopefully one day I can be profitable trading!
Pleased to hear that, Codey. Let me know if you have any questions.
Hi Justin, i have always had it the other way around to draw my key levels: supoort and resistance. i would go to my weekly time frame and use the beautiful pin bars i find there to draw my levels. the high and low of the pin bar would then become my key level. these levels i use on daily time frame to trade with price action. how valid is this method, in your opinion?
If it works for you, then I’d say it’s valid. There’s no single right way to go about drawing support and resistance.
Enjoyed watching your video, just wondering what charting software do you use?
Pleased to hear that, Dan. The charts I show on this site come from MetaTrader.
how do you draw it then?need to learn how to draw
Sir, I had just read your “How to properly draw S & R Level”. It is really enlightening.
However, Sir, does the S&R levels that we drawn in a Daily Chart applicable to a 4-hour’s too ? Or, different set of S&R levels should be used ?
Pleased to hear that, Albert. You have to study the chart to determine whether the market is respecting a given level on the 4-hour AND daily or perhaps just the daily. Not all levels are created equal in that regard.
Enjoyed reading your blog sir…Iam a student from India.Iam planning to subscribe with you..I want to become consistently profitable trader..Pls give me all support..Thank you…
Enjoyed your article! Thanks for sharing it.
One question though, Do you agree that one of the trates of a good Trader is “Consistency” or “Discipline”? Which makes me think, Are there any Indicators, or Softwares (That you know of), which can draw these Lines, with consistency, and reasonable accuracy?
I be glad to hearing from you.
Many thanks again for the article, Loved it!
is it better to trade a monthly chart to capture more then 200 pips
is it better to trade a monthly chart to capture more then 2000 pips
Just a quick question, Which time frame do you use to draw your support and resistance level ? Daily or Weekly.
Since I have started following you l am learning a lot.thank you
you are best justin.
Nice work Justin. I never knew support and resistance are not much difficult to identify and marked on chart. I am so happy for this wealth of knowledge. Please keep up the good. God bless you more.
Very much clearance about drawing level
[…] a market have to be trending or can it be range-bound? Does the pin bar have to occur at a support or resistance level or will you also consider trading continuation pin […]
[…] for the content, you should focus on the significant market movements. Did a pair break support or resistance today? Did a pin bar or inside bar form? Is a market forming a technical pattern that may lead to […]
That was a great article.
Plain and simple. So glad I became a member. My trading insight and though process have improved.
I am now calm and relaxed when looking at a set up and placing a trade.
Thanks so much, you make learning forex so simple.
Just want to know how to get that charting software
I have read the article and understand fully the concept. I am eager to add this to my practice . I really want to be a full time trader and appreciate all the help I can get. Thank you Justin
Antony here, Do you recommend that Support and Res works well on the daily timeframes? Here is my number I need to ask you something +27 782 8550.
Enter your comment…what a fantastic lesson indeed thanks alot for up lifting my passion on forex
HI, It’s the first time to your site. Love the information. I’m trying to take it in and keep in mind that I need to keep it simple and not over complicate it. I’m a newby and hope to absorb the information so I can feel confident to start some buys and sells. Thank you for sharing your knowledge. I’ll be coming back.
Learn how to drawn supports and resistances
Thank you for putting this up……. U simplified this mystery to me……. Am new in forex I hope follow up on u.
Thank you bro, u clear my mind with good explanation, i always have doubt to draw S&R on High/low or on Open/Close candle… i’m really clear myself on this S&R lesson..
once again….Thank you so much bro
I like your write up, it is so interesting, but my question is if one observes a pin bar at the support or resistance level in the morning, is it encouraging to place trade order even when the current day trade has not stope
Great stuff..u are a good teacher
this video is useful and as lots of insight
Thank you so much
do banks and big market makers use S&R as well? and if yes, in the same way? Thanks.
Sir, I read you S/R Horizontal Key Level It is really nice and very helpful for my but I am often confuse about trend line. Can you share me how to draw trend line. Thanks
I love using the weekly and monthly chart using a line chart format to get my key levels
I have to thank you for your service to mankind I didn’t know you can trace back for just six months, I use to go three years back,thanks for this great lecture on support and resistance
Ya ur right, i feel comfortable in reading & understanding the concepts, will apply in trade from now on wards & let u know my feeds back asap. Thanks & greetings.
I read that Weekly TF chart major support and resistance levels have more weight as well when trading on the daily TF charts. How do you differentiate between Daily TF support and resistance levels and Weekly TF support and resistance levels? What if Daily TF swing high and lows are nearby to Weekly TF swing high and lows? Would you not mark them even if they were close?
Thanks for all the details an explanations, I have now understand. I think am in the right place with the right people. Although am a trader but l have not got to this extent. I started trading about three months ago an I have not been making profit due to little experience.
I have went through the swing trading cheat sheat, it’s interesting an I will put what I lean there into practice . Thanks
Thank you justin
[…] Support and Resistance Levels · 3 Powerful Techniques to … […]
Hi thank you for your time and lessons so far on support and resistance.am already working on my chart. If I have any questions I will get back to you.
Liked your lesson hope to learn more from u since I dnt hv much experience in trading but little by little tbe info u guys give us is great
Thanks Justin, you have answered a question that’s been nagging at me, how far back do I look to draw “support and resistance “ levels. And the answer is 6 months.
to draw S/R lines i change to line graphs and swing highs and lows become more visible
Great lesson, I purchased your lifetime member program 4 days ago. I am Looking forward to receiving my account login credentials so I can view membership lessons and materials. Thanks
This commentary sections in your lessons are awesome. Just by looking at the answers to some of these questions I am expanding my knowledge and learning a lot more, thanks
[…] to any financial market, you can consider support and resistance lines as supply and demand. When you look at charts, you see these lines acting like barriers and […]
I normally look for areas where price seem to have clustered for a while before moving. There, I draw my resistance and support. Now with your lesson, I have learnt that I have to look out for those areas where there is pin bars to draw my resistance and support. Thanks.
You’re welcome. It won’t always be a pin bar. It’s a little less precise than that.
Is there any tools to draw S&R automatically
Thank you Justin u the best, my question is if i draw S/R on the weekly and daily time frame than i decide to trade on the 4hour should i draw S/R on the 4hour too? pls help thats all i want
Well, it would probably help if the level is visible on the time frame you’re using. Not quite sure if that’s what you’re asking here.
Hello Justin! Thank you for your very informative and useful content, sure appreciated by every comprehended trader. My question is how often/after what time interval do you make revision of your determined levels on your chart? I’m interested about your approach, how you do that. Thank you.
You’re welcome. There is no set time interval. I only make changes to a level if the market gives me a reason to do so.
This is a good article for a beginner like me.
[…] a trader is using raw price action or simply using it to identify key levels in the market, price action plays a major role in any […]
Thank you sir. Your teaching and instructions have so much blessed my forex training. You talked about price action buying or selling signal forming on these levels, and you mentioned pin bar. My question is that, is it only pin bar that I should expect to see on these levels? Are there other price action signals that should be expected on these levels? Thanks.
Top notch,as always. Love your stuff Justin. Kudos to ya’Pal!
Hi sir i cant open ur SR video
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Cryptocurrency support and resistance levels – what are they?
Support and resistance levels are a very important trend metrics for those interested in trading cryptocurrency. By learning to use these properly you can then start to identify when to buy and sell for the most profitable trades.
Most cryptocurrencies follow a regular pattern, and traders who pay attention stand to profit. What do these terms mean though? How can you use these very important trading metrics to your advantage? In this article, we’ll explain what they are, and we’ll also tell you how to identify and use them to your advantage.
What is a support level in cryptocurrency trading
A crypto’s support level is the value which it is currently believed that a cryptocurrency will not fall beneath. This level is normally supported by a large amount of demand and buying activity because traders believe the asset is undervalued. This floor that is created is normally believed to be an excellent buying opportunity or at least a safety zone.
Most coin and token traders who are interested in day trading will try to use these levels to establish a baseline which can be used to gauge where the highs and lows are.
However, you should keep in mind that these are subject to change quickly, and there’s no guarantee of exactly how long a cryptocurrency will hold these support or resistance levels before moving up or down. You should use support level tracking in association with other indicators to do well on your trading.
How can you find the support level?
The easiest way for newcomer traders to begin to identify support levels is by comparing data from previous highs and lows. By drawing a trend line under the chart where support levels are being tested, you can get an idea of where they have been returning to.
The ease of this tactic, however, is deceptive. It’s easy to draw a trend line in retrospect because you already know what has happened. It’s much harder to predict what’s going to happen in the future, and there’s a lot of things which could alter the path of your support level trend line, so be careful.
When defining your support levels, it’s a good idea to zoom out in the chart and get the whole picture. While defining support levels within your trading window is important, there may also be some things that you might miss if you don’t look at the whole chart.
Make sure to see how the asset in question has responded in the past as well, as this could give you insight into future support levels or dangers that may not appear in smaller trading windows.
Crypto resistance level meaning
The resistance level is the opposite of the support level. Crypto traders are looking for indications that an asset will break resistance and go up in value. However, other traders are acting as “resistance”. They are selling their coins and tokens or closing their short positions.
In order for the value of an asset to go up, it needs to break through this barrier. This would include emptying the order books of sell orders that may be blocking the asset’s rise to new levels where a new and higher support level can be established.
How can you identify the resistance level?
The easiest way for traders to identify the coin or token’s resistance levels is exactly the same as what we suggested for support levels. You can analyze the chart and then draw a horizontal trend line. This time though, your line should be drawn at the top of the chart to trace the peaks.
Using this method you can begin to identify what trend the asset is following, and you can decide where to place your buys and sells to turn a profit. If a cryptocurrency managed to break its resistance level, then the old resistance level could become the new support if the demand is great enough to hold it there.
Do support and resistance levels work for Bitcoin only?
No, every cryptocurrency and even tradable assets in other markets will have these levels. How they respond may be different though, and you’ll need to spend your time familiarizing yourself with each of the ones that you want to trade. Some have a habit of repeating the same patterns reliably, but others could be more unpredictable. This is part of the risk of trading cryptocurrencies.
How do you use support and resistance for crypto trading?
You can use the support levels you determine to plan when you will buy and sell. If you already have money in the market, then you may also look to pull that money out to protect it if you believe the support will break. Likewise, you may want to put more money in if you believe that the resistance will break and the coin or token will increase in value.
Depending on how strong the break is, it could result in significant profit or loss. You could also use support levels indicators for shorting in order to take advantage of the aftermath of a break.
What happens when the levels are broken?
When the levels are broken it’s hard to say how high or low the crypto asset in question will go. However, it will trade erratically for a bit, and then a new resistance and support levels are determined by the market based on the current sentiment. The asset could return to previous levels or it could break out further.
For more insight into how an asset has responded to previous breaks, you could try looking at the long-term charts. This might give you a little bit of a baseline to decide how to make your next move and how drastic the break’s movement could end up being.
What happens when support becomes the resistance?
If the value of a particular cryptocurrency drops beneath a certain point, then what was the support could become the new resistance. Sometimes if there is enough negativity after the support is lost, then the asset could continue to fall to more dangerous levels.
Popular support and resistance indicators
Here’s a few indicators which can help you to find the support or the resistance level for a cryptocurrency. There are of course more that you can use, but these are a good start if you’re a beginner that is looking to learn some basic techniques.
Fibonacci Retracement – Traders using this indicator take two extreme points, and then divide the vertical distance using the established key Fibonacci ratios. This allows traders to figure out where to draw the horizontal lines needed to establish support and resistance levels.
Pivot Points – This indicator pivot point and the period’s last levels. Can be used to establish resistance or support.
Donchian Channels – Used to identify price breakouts that are either above or below the asset’s price history. It helps traders to plot the high and low boundaries.
Support and resistance vs supply and demand
While support & resistance and supply & demand have a relationship, they are different. You should use both to help plan your trades because supply and demand can offer insights into what the support and resistance levels will become.
For example, if you have seen that the demand has dropped out of the market, but a cryptocurrency asset is trading sideways, then you will likely see that the support level will collapse soon, though it may take a while for it to catch up.
What are support and resistance trend lines
The support and resistance trend lines are the horizontal lines which are drawn at the top and bottom of a chart. Using these lines traders and investors can plot where the support and resistance levels of a cryptocurrency are.
This can then be used as a guide to decide where to buy or sell coins or tokens. These typically trace the peaks, both high and low in order to draw out a line of the path that the asset is traveling throughout its price history.
Learning to draw a proper trend line is one of the first things you should do when learning to trade cryptocurrencies. If you use Bitsgap’s trading tools, then you can actually draw them right on the live charts! This means that you don’t need any outside software, and you can do your practice TA using a Bitsgap demo account on a live trading chart until you’re ready to trade for real.
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