Support Resistance Levels

Februari 15, 2023Januari 18, 2023 falma.u99 levels, resistance, support

Every trading strategy ever developed is based on support and resistance levels.

How you find those levels can vary depending on experience and/ or information available. Some traders will find support and resistance using a simple horizontal line on the chart where others might be paying for premium access to footprint charts to find their levels.

It took me a while to realize this, but how you find your levels really doesn’t matter. What matters is that you have a reliable and repeatable system that you can use to find support and resistance and more importantly, you know exactly how to trade those levels.

By general rule of thumb, support levels are good areas to buy, while resistance levels are historically good areas to sell. Here is a simple rule that all traders should be familiar with:

Never buy into resistance, never sell at support

In this article I will be covering Part One of Support & Resistance Levels. These are, in my opinion, great levels that all traders can start with and profit from with a basic TradingView, or other charting service, subscription. I will be delving into more advanced levels of support and resistance in Part 2 and 3, but for now let’s focus on horizontal levels.

Start on the higher timeframes, and highlight all local tweezer tops and tweezer bottoms relative to current price action. Repeat this step for the following timeframes:

* Monthly

* Weekly

* Daily

* 4 hour

* 1 hour

* 15 minute

If you don’t know what a tweezer top/ bottom candlestick pattern looks like, see below.

Now that you know what a tweezer top/ bottom looks like, and what timeframes to find them, it’s time to start drawing your horizontal S/R levels.

Use the rectangle tool to draw a box from the candle body close, to the wick high/ low of the tweezer top/ bottom candlestick pattern. Do this first on the Higher timeframes and work your way down to the Lower timeframes. It should look like this:

Here is an example of the Monthly horizontal S/R levels on Bitcoin:

Here is an example of the Weekly horizontal S/R levels on Bitcoin:

Here is an example of the Daily horizontal S/R levels on Bitcoin:

As you can see, your chart should start filling up with zones of support and resistance above and below price action.

My fair warning to you is to try your best to only pay attention to the zones that are nearest to current price action. This will help you avoid clutter on your charts. Clutter can often lead to analysis paralysis, the inability to make a decision due to processing too much data or having too many options.

My final tip — Be picky with your levels!

A level should prove it self worthy enough to be on your chart by way of price action. If it led to a big move in price action, put it on your chart. Even if you are 50/50 about adding a level, don’t include it onto your chart. You only want to trade from the highest probability levels, and to do that you want to chose the levels that led to something significant in price action, e.g., a big sell off, a trend reversal, or a big pump in price.

The higher the timeframe — the better the level, but that does not mean that all high timeframe levels are going to give you the reaction you’re looking for. The lower you go on timeframes, the pickier you should be. Do not get caught up in making sure you have every damn 1h level on your chart — be picky AF.

* For Swing trades, use higher time frame horizontals; Monthly, Weekly

* For Day trades, use medium time frame horizontals; Daily, 4hour

* For Scalp trades, use lower time frame horizontals; 1hour, 15min

Important tip: know your time frames, know your levels.

If price is hitting your 1h horizontal level, don’t go swinging for the fences. The higher the timeframe, the stronger the level. That means if you see price hitting your monthly level, this could be a good zone for a potential swing trade idea. Higher timeframe levels generally take a little bit longer to play out than lower timeframe levels. Therefore, your trade idea should take into consideration which horizontal level you are trading from. Higher timeframe levels are better for swing trades and day trades, medium timeframe levels are better for day trades, and lower timeframe levels are better for scalping.

When price enters your S/R level, start looking for entry triggers, e.g., reversal patterns, continuation patterns, or any price action pattern that confirms that price is potentially going in your predicted direction. I cover entry triggers and price action patterns in these two articles; Try This Simple “Pattern Trading” Strategy and The Only Entry Trigger You’ll Ever Need

When trading off of horizontal levels, never preset limit orders. Instead wait for price to confirm your trade idea with a price action pattern such as the Quasimodo pattern, double tops/ bottoms, swing failure patterns, morning star patterns, or whatever price action pattern you prefer.

When price enters your zone, drop down to a lower timeframe and look for your entry trigger. When you find your entry, set your stop loss above/ below the invalidation of your price action pattern. Here are few examples of what that would look like on the chart:

Here is a more realistic example of a perfect S/R level trade:

When it comes to selecting take profit zones, you have 3 options:

1. Market structure — significant highs/ lows, liquidity zones, etc.

2. S/R zones — if you are trading from a 4h S/R level, then use 4h or higher S/R levels for TP zones

3. Fibonacci retracement levels — 38.2%, 50%, 61.8%, etc.

Here is what that would look like on the chart:

Horizontal support and resistance are some of my personal favorite price action levels to trade from. In my opinion, all traders should start by trading classic horizontal support and resistance levels. Whether you’re just starting out or have been trading for years, I encourage you to back-test this strategy and you’ll be surprised to see just how well this simple strategy holds up against some of the more advanced techniques.

I plan to get into some more advanced support and resistance levels in Part 2 of this article.

Until then, happy trading and thanks for reading!

– Mr. E