How To Draw Support & Resistance

Remember, the basics of support and resistance are very similar to that of supply and demand just adjusted to reflect price action. Where there are areas of demand buyers are willing to purchase more shares and push prices back in the upwards direction. This is known as a support level. Where there are areas of supply sellers are willing to sell their shares and push prices back in the downward direction. This is known as a resistance level.

To draw levels quickly and accurately remember the 5 steps:

1) What time frame will you be trading? It doesn’t make sense to trade the weekly chart with 5 minute support and resistances.

2) Spend only 10-15 seconds determining wether or not a level is actually support or resistance. If it takes longer then you might be trying to force yourself to see a level that isn’t actually there.

3) Try to get as many data points to line up with the level as possible. The more touches the better. It’s better to have a level that is NOT a cherry picked high or low but instead represents what is more likely to happen.

4) Use the zone effect. Its okay if levels aren’t lining up to the exact penny. Its okay if wicks or bodies of candles pierce through the level or don’t quite make it all the way up to it. It’s a judgement call to figure out what the acceptable zone is and will vary from stock to stock or trading pair to trading pair.

5) We want to favor most recent price data. The more recent data has more wight because it is what has been respected by traders most recently instead of more historically.

These methods can be used for any form of technical analysis, stock analysis, options trading, forex trading, and even futures trading. If you’re a beginner learning to trade stocks than this is one of the foundational elements to becoming a successful day trader. Trading support and resistance is one of the basics everyone needs to know.

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