The Foundation of Trading
Support and Resistance are the most important concepts in technical analysis. They represent psychological barriers where the market effectively says "This price is too high" (Resistance) or "This price is too low" (Support).
Key Concept
Resistance, once broken, becomes Support. Support, once broken, becomes Resistance. This is called a "Flip".
Trading Strategy
Buy Scenarios
- Bounce: Price touches Support and starts moving up.
- Breakout: Price smashes through Resistance with volume.
- Retest: Price breaks Resistance, comes back down to touch it (now Support), and bounces.
Sell Scenarios
- Rejection: Price touches Resistance and drops.
- Breakdown: Price crashes through Support with volume.
- Retest: Price acts breaks Support, rallies back up to it (now Resistance), and rejects.
Disclaimer
Support and resistance levels are ZONES, not exact lines. Price often wicks through them to trap traders before reversing. Always wait for candle closes to confirm.