*Learn how to draw Support & Resistance zones and trade them!*
Support and resistance zones are something that most traders learn very early on in their education. Everyone talks about them and any technical trading training material will (or should) include them. I will use this post to show you how I place support and resistance zones on my charts and show you an example of how I use them in conjunction with other analysis to enter trade positions. Let’s get started.
Firstly, let’s look at what support and resistance means but to be honest it is pretty self explanatory.
A support zone is a price zone that holds price up or provides support for price at that area and therefore price will not drop much lower. You can think of support zones as a floor. A resistance zone is a price zone that that keeps price down or provides resistance at that area and will stop price from climbing higher. You can think of resistance zones as a ceiling. I will explain the floor and ceiling analogy a bit later.
You will notice I use the term “zones” when talking about support and resistance and this is very important. I don’t think anything is perfect in the financial markets and I use this theory when trading using support and resistance. Of course you will see examples where price does reverse at a very specific pip perfect level but this will not work very often and I find it much easier to trade support and resistance as zones of around 20pips/points wide to look for entries for trade positions.
Let’s look at a simple weekly timeframe price chart for the FTSE 100 index and I will mark on where I think the support and resistance zones are.
By switching to the line chart you eliminate a lot of the noise and wicks from the image. The line chart is calculated to the same weekly timeframe but it is based purely off of the candlestick close price which would be the market close price on every Friday evening. Now you can easily find zones of support and resistance by just looking for points the line bounces multiple times.
TOP TIP: If you use the TradingView platform then the zones will stay marked on when you switch between the line chart and candlestick chart modes.
Now you have the support and resistance zones marked on as lines you can zoom in and see how price has reacted there. You will see on the chart below that I have changed to the daily timeframe chart and made the 7770 resistance line in to a resistance zone. You can now see how price reacts in this zone and how it has produce many direction changes and reversals which is where trade opportunities present themselves.
Just by looking at the chart above it is clear there have been quite a few opportunities to enter positions at this resistance zone. Without any extra analysis it could have been profitable to simply enter short positions at this zone with a stop loss place conservatively above the wick test candles and produce some profit. On the occasion where price did break and close above the resistance zone, there was then a retest of it which is what I would expect and this is an example of when a resistance zone becomes a support zone. So let’s go back to the floor and ceiling analogy.
As it stands, the 7770 zone on the FTSE 100 index is a ceiling but when a ceiling is broken it now becomes a potential floor. The floor is then there to keep price up by supporting it and that is your new support zone. Think of price like and elevator or a stairwell. As you walk up the stairs, the ceiling of the 1st floor becomes the floor of the next floor. Wow… so many floors!
Let’s look at it on the simple line chart from earlier and then also the FTSE 100 price chart.
And here is the same theory marked on a real price action chart:
You can just use support and resistance zones to trade with. They provide reasonably good entries for trades but they aren’t perfect and I would recommend using them in conjunction with other trading techniques such as: candlestick patterns, fibonacci retracement levels and moving averages.
Support and resistance zones can be applied to almost any timeframe chart but if you go to lower timeframes they will become more frequent in quantity and therefore less effective. As always, keep it simple. Stick to the main higher timeframe support and resistance zones and you won’t go far wrong. I am a fan of swing trading and holding trades for as long as they are profitable which then requires less work and leaves me more time to live my life.
The goal of being a trader is the freedom right? 🙂
If you want to learn how I use support and resistance zones to help me swing trade the financial markets then please check out my book – A Basic Guide to Swing Trading The Financial Markets. You can find it on the downloads page of this blog or on the amazon store by clicking on the link on the image below.