identify-support-and-resistance

We discussed the criteria for identifying key support and resistance levels in a previous post about support and resistance. In this post, we will take a look at more examples to show you how to spot important support and resistance levels using those criteria we discussed in the previous post.

To refresh your memory, here are the criteria for identifying a support or resistance level that we discussed in that post:

  • You look for extreme swing highs and swing lows
  • There should be multiple price rejection at the same level
  • The level has to be obvious
  • The level must be recently respected or recently created
  • The level has acted as both support and resistance

Note that you don’t need all the criteria to identify a support or resistance level. One criterion may be enough, but the more criteria a level has, the stronger the level.

Example 1: AUD/USD H1 chart

Take a look at the chart below. You can see that the price reached a certain high level and reversed. This level is resisting further price advance, so we can draw a horizontal line at the highest point of that price swing to mark the resistance level. 

identify-reasitance-levels

As you can see, we used the extreme swing high criteria to identify the resistance level. But the level also meets another criterion — the level is obvious. Looking at the chart, you can easily see the upward price swing and where it reversed, and the price fell significantly after it got rejected at that level. 

Now, look at that chart again to see other price reversal points you can find. Obviously, we can see that the downswing reversed at a certain level. That level got tested again, and the price reversed again. Applying a horizontal line at that level, we mark our support level.

identify-resistance-levels

The support level fulfills the following criteria:

  • The extreme of the swing low was used 
  • The level is obvious because the price swing down to that level and the reversal swing after it were very significant 
  • There were two price rejections at that level 

While there are other levels, they are not considered valid levels because they don’t fulfill any of our criteria. 

For example, take a look at the chart below so you can see some of the minor levels I identified:

identify-support-levels

The identified minor levels have no effect on interpreting the market swings because they are not obvious and do not cause big moves in the market. You should ignore them when drawing your support and resistance levels to avoid getting confused. 

There’s another obvious level that we didn’t indicate in the previous chart. Take a look at the chart below:

identify-support-levels

You can see that the level in the middle of the chart is valid. That level fulfills the following criteria:

  • It is obvious since it’s formed by significant price swings.
  • It has acted as both support and resistance.
  • As we already stated, a level doesn’t need to fulfill all the criteria to be considered a support or resistance level — one criterion is enough.

    Basically, you don’t need to sweat it out before you identify a valid support and resistance level, as it will just stare at your face. If a level is not obvious, leave it.

    Example 2: another AUD/USD H1 chart

    Take a look at the chart below:

    identify-support-levels

    We spotted the first level. The level meets the following criteria:

  • It is the lowest reversal point for downward price swing (extreme swing low)
  • It is an obvious level because the price swings to it and away from it are significant
  • It was recently created and respected 
  • The price had attempted to break below that level on two occasions but was rejected each time
  • Still examining the chart, can you spot the first resistance level after it that turned a support level? You can see it in the chart below:

    support-becomes-resistance

    You can see that the level marked the reversal of two different price swings: the first is an upswing that was resisted and the second was a downswing that retested it after the price broke above it. In all, the level meets the following criteria:

    • It is quite obvious, with significant price swings to and from it 
    • It acted as resistance but later turned support after the price broke above it

    Examining the chart further, we can spot another level higher up on the same chart. See the image below:

    support-becomes-resistance

    This level is also a resistance level that turned support. As a resistance level, the price was rejected twice from the level, and when it turned a support level, the price was rejected three times from there. In addition to that, the level is obvious, with a significant swing to and away from it. So, we say it’s a valid level. 

    There are other levels we can identify further up. If you look very well, you can see two more resistance levels. See the same chart again below:

    identifying-support-and-resistance

    We consider the first resistance level valid because it is quite obvious and the price got rejected twice there. The second level is even more significant, as it meets the following criteria:

  • It’s the extreme swing high
  • It’s obvious, and the move away from it was significant
  • It’s recently created and respected
  • The price was rejected twice at that level
  • With these two examples, you should be able to identify support and resistance levels on your chart. But we can look at another example. 

    Example 3: EUR/USD H1 chart

    Take a look at the chart below:

    trading-support-and-resistance

    The first level we identify is the resistance level. We consider the level valid because it fulfills the following criteria: 

  • The level is the highest point the price has reached as at the time it reversed (extreme swing high)
  • The level is obvious and can be clearly seen, as the price swings to and away from it are significant
  • With these criteria, we can easily identify the resistance level. Looking further, we can spot other levels. Let’s see what they are in the same chart below:

    support-and-resistance-levels

    You can see a valid support level, right? The level fulfills the following criteria:

  • It is obvious, as the price swing down to it and away from it are very significant 
  • The price was rejected several times from the level, which shows that the level is respected by traders
  • The level was created recently
  • With these criteria, we have no doubt that the level is a valid support level. 

    But are those the only levels you can see on the chart? Can you spot any other level? if you do, what level is it? Let’s look at the chart again. See the image below:

    identify-support-and-resistance

    Sure, you can spot another resistance level above the support level. The level is valid because it fulfills the following criteria:

  • The level is obvious, with a significant price swing to and away from it. 
  • The price was rejected several times from that level, which shows that traders respect it.
  • The level was created recently
  • Final words

    From the three examples we discussed here, you can see that, by following our criteria, you can easily identify important support and resistance levels, which are essential tools for spotting high-probability trade setups in the market. 

    However, support and resistance levels are not the only things you need to make your trading decisions. It would be disastrous to just set a limit or stop order around support and resistance levels or even place market orders without considering other factors that make for high-probability trade setups, such as specific market maker traps and important patterns. You will learn all these when you join my trading course.

    It may seem like a lot of work to learn all you need to succeed in trading. But I’m always here to assist you all through your trading journey if you are willing to do the right thing and put in the hard work. I will teach you everything you need to succeed in trading, but I cannot force you to do what is required to deserve success in your trading. While you may think you deserve to succeed in trading, your trading account will tell you whether you’re getting it or not. It is up to 
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