Wysetrade
Learn how to find support and resistance levels and advanced techniques to improve your trading. Criteria for identifying levels include extreme swing highs/lows, multiple rejections, and obviousness. The more criteria a level fulfills, the better. Comment below topics you want to see covered.
How to Find Support and Resistance Levels in Trading: A Comprehensive Guide
Introduction: What You Will Learn
Support and resistance levels are essential tools for traders to identify potential trade opportunities. In this article, we will show you how to easily find support and resistance levels as well as some advanced techniques that would take your trading to the next level. We will also cover the criteria that we look for when identifying these levels.
What is Support and Resistance?
Support and resistance are areas where price has reacted to in the past and can potentially react to in the future. These levels signify the level at which buyers or sellers are willing to take action, creating a potential trading opportunity.
Basic Criteria for Identifying Support and Resistance
1. Extreme swing highs and lows
2. Multiple rejections of an area
3. Obvious level
4. Drastic move away from the area
5. Level acts as both support and resistance
6. Recently respected or formed in a recent time period
Trait 1: Extreme Swing Highs and Lows
Extreme swing high and low points are the highest and lowest points that price has reached in recent time. Once identified, these levels can manifest into potential support and resistance levels that traders can use to enter or exit positions.
Trait 2: Multiple Rejections
Multiple rejections of an area increases the probability that traders will be taking action at these levels. The more rejections a level has, the more significant it becomes in identifying potential trade opportunities.
Trait 3: Obvious Level
Obvious levels are levels that jump right out at you and you should be able to spot them right away. The more obvious a level is, the more traders will be eyeing the level. This increases the probability that traders will be taking action at these levels, making them more significant.
Trait 4: Drastic Move Away from the Area
A drastic move away from the area signifies that the level holds significance. A small bounce wouldn’t hold as much weight as an actual reversal. A significant move away from the area signals that the level is holding the market and that it’s worth taking note of for potential trade opportunities.
Trait 5: Level Acts as Both Support and Resistance
A level acting as both support and resistance further increases the level’s significance. It shows the level was respected from both sides, making it more favorable to traders.
Trait 6: Recently Respected or Formed in a Recent Time Period
Recently respected or formed levels are current and new. This makes them more effective as they are still valid in a current time period.
Putting it All Together: Applying Criteria to Identifying Support and Resistance
As a reminder, you don’t need all the criteria to identify a level of support or resistance, but the more criteria a level fulfills, the better the level. To apply these criteria, we will plot support and resistance levels on a chart.
Level 1: Extreme Swing High
The first level we identify is an extreme swing high at the very top of a chart. This level is significant because it is the highest point that price has reached in recent time and because there were multiple rejections at this level.
Level 2: Multiple Rejections
The second level that we identify is a level with six rejections, making it more significant. The level was also recently respected and is an obvious level, making it a prime level for potential trade opportunities.
Level 3: Obvious Level
The third level that we identify is an obvious level at which price hit and reversed. This level is significant because it fulfills multiple criteria, such as being an extreme swing low, having multiple rejections, and being an obvious level.
Level 4: Recent Respect
The fourth level that we identify is a recently respected level with three rejections. This level is significant because it is a current and new level that’s still valid in a current time period.
Conclusion: Utilizing Support and Resistance Levels in Trading
In conclusion, support and resistance levels are essential tools that traders use to identify potential trade opportunities. By knowing what criteria to look for when identifying these levels, traders can effectively enter and exit positions. Remember, you don’t need all the criteria to identify a level of support or resistance, but the more criteria a level fulfills, the better the level.
