Understanding Support/Resistance Levels

Support and resistance levels are very important in trading. These are levels where we look for price containment. There are both minor and major support and resistance levels and
deciphering between the two can help a trader maximize profits and minimize
losses. The basic definition of support is the price or area where we look for a
pair that is moving down to find some ground. Resistance is the price or area
where we expect a pair that is moving up to hit a ceiling.

Support levels are always going to be BELOW the current market price. If the EUR/USD is trading
at 1.3391, we cannot see support at 1.3520. This would not make sense.
Resistance, meanwhile, is always found ABOVE the current market price. If a pair
is moving higher and breaks through a resistance level, we will look for old
resistance to act as new support. For example, if the EUR/USD is rallying and
breaks through resistance at 1.3441, we will look for this old level of
resistance to now act as support. A break in support works the same way. If the
EUR/USD fell below a 1.3181 support level, we would look for that level to act
as a new resistance.

OLD SUPPORT = NEW RESISTANCE
OLD RESISTANCE = NEW SUPPORT

How to find support and resistance levels, major and minor, using your software.

Those charts are 15 minute, 60 minute, 180 minute, and short-term (1 day). While we find near-term support and resistance (S&R) levels on 15 and 60 minute
charts, long-term S&R levels are found on the 180 minute and 1 day charts.
Near-term S&R levels are usually our minor S & R 1 levels, while the
longer-term charts give us more significant S & R 2 levels. Of course,
sometimes we will be able to see the same level on a 15 minute and 180 minute
chart at the same time. Use the following link to see examples of both minor and
major support and resistance levels.

We can see on the top chart (short-term) that major support and resistance levels are identified at the tops
and bottoms on this chart. We can use highs and lows on longer-term charts as a
good source of major support and resistance. When we look for the resistance at
the top of the chart, it is important to use the HIGHEST price in your scrolling
pop-up data. When we are looking for support at the bottom of the chart we want
to use the lowest price in our scrolling pop-up data.

Now let’s look at the 60 minute and 15 minute charts to determine near-term (minor) support and
resistance levels. These levels are broken more frequently, which is why we
refer to them as minor or insignificant. Looking at the 60 and 15 minute charts,
we see that each little dip or on the way down is minor support and each small,
failed rally top is minor resistance. There can be several minor support and
resistance levels very close to the current price of a currency pair. Because
longer-term traders do not pay much attention to these levels, they are
penetrated easily in good moving markets.

Hint: If we don’t know where support and resistance are, we can get caught buying into resistance
levels or selling right above a support level. Although the levels may be
broken, we are adding unnecessary risk to our trade. Therefore, we do not want
to buy a pair very close to major resistance or short a pair too close to a
major support level.