Support and Resistance: How to Find Levels That Matter

Support is a price area where buying has tended to stop declines. Resistance is an area where selling has tended to stop rallies. They are among the most widely used concepts in trading, because so many traders watch the same levels.

Why levels form

• Memory. Traders remember where price turned before and place orders there.
• Unfinished business. Buyers who missed a low may buy if price returns; holders who are underwater may sell when price gets back to their entry.
• Round numbers and widely watched references, such as the previous day's high and low.

Finding levels that matter

Strong levels usually have several of these:

• Multiple touches: price turned there more than once.
• Sharp reactions: a strong move away from the level.
• Higher timeframe significance: daily and weekly levels matter more than one-minute ones.
• Recency: recent levels are watched by more traders.
• Volume: significant trading activity at the level.

Treat levels as zones, not exact prices. Price often pokes slightly through a level before reacting.

Common day-trading levels

• Previous day's high, low and close.
• Premarket high and low.
• Opening range high and low. See opening range breakout.
• Volume-weighted average price. See VWAP trading.

Role reversal

When resistance breaks, it often becomes support on a retest, and vice versa. Many breakout traders wait for this retest for a better entry. See breakout trading.

Using levels in a trade

• Entries: buying near support or on a confirmed break above resistance.
• Stops: placed beyond the level, with some room for noise. See stop-loss placement.
• Targets: the next level in the direction of the trade.
• Risk-reward: the distance to the next level versus the distance to your stop tells you quickly whether the trade is worth taking. See risk-reward ratio.

Be careful with hindsight

Levels look obvious on old charts. In real time, many potential levels exist. Write your levels in your pre-market routine before the session, then review afterwards which ones mattered.

In TradeThink

Review your trades on the price chart with entries and exits plotted, and tag trades by the level traded, such as "previous day high", to see which levels give you the best results.