Support and Resistance levels are very powerful points for trading these levels are denoted by multiple touches of price without a breakthrough of the level. These levels are seen by technical analysts as crucial when determining market psychology and supply and demand. Support and Resistance provides the trader many clues about the market and how to trade with ithese levels.
A support level is a level where the price tends to find support as it falls, these levels tend to stop price from falling below. In the image above you can see that each time the price reaches the support level it has difficulty penetrating that level. When price breaks below support, it is likely to continue falling until meeting another support level.
A resistance level is the opposite of a support level. It is where the price tends to find resistance as it rises. on the other hand, is the price level at which supply (selling pressure) is strong enough to prevent the price from rising further. In the image above you can see that each time the price reaches the resistance level it has a hard time moving higher.once the price has breached this level, it is likely to continue rising until meeting another resistance level.
Identifying support and resistance levels
There are also different types of support and resistance levels these levels can be identified by Horizontals lines, trend lines and some traders believe in using pivot point calculations. The more often a support/resistance level is touched and bounced off by price, the more significance is given to that specific level.
If a price breaks past a support level, that support level often becomes a new resistance level.The and if price breaks a resistance level, it will often find support at that level in the future.
In a downtrend the price makes lower lows and lower highs. In an uptrend, the price makes higher highs and higher lows. We can find the support and resistance levels by Connecting these highs and lows during a trend. Then, extend that line out to the right to see where the price may potentially find support or resistance in the future.
Example of resistance becoming support and support becoming resistance