Master support and resistance levels to make your trading no longer blind

What Exactly Are Support and Resistance?

In the price movements of any asset, there are two invisible forces: one pushing the price upward, and the other pressing it downward. This is the essence of support and resistance.

Support is the buying strength that appears when the price falls. When an asset’s price drops to a certain level, buying interest emerges, causing the price to stop falling or even rebound. This price level is called the support level.

Resistance is the selling strength that appears when the price rises. When an asset’s price climbs to a certain level, sellers start to exit in large numbers, making it difficult for the price to continue rising. This price level is called the resistance level.

Traders typically use support and resistance to predict future trends and develop buy and sell strategies.

How to Accurately Identify Support and Resistance?

It may seem simple, but there are tricks.

Support and resistance levels are not arbitrary. By observing candlestick charts, you will notice:

• Support appears near “valleys”—that is, the low points of the price.
• Resistance appears near “peaks”—that is, the high points of the price.

Correct Method for Drawing Support and Resistance Lines

Drawing support and resistance lines is quite straightforward:

Support Line: Find at least two or more low points, and connect them with a straight line—that’s your support line.

Resistance Line: Find at least two or more high points, and connect them with a straight line—that’s your resistance line.

The key is to identify sufficiently clear low and high points. Only then can the lines truly reflect market psychology rather than noise.

Breakouts and Role Reversal of Support and Resistance

This is the most interesting part: support and resistance can switch roles.

Imagine gold price forming support at @E2@1912@E2@ dollars, but suddenly plunging through this support level. Then, when the price rebounds to around @E2@1912@E2@ dollars, that former support level becomes a resistance level—that is, it now acts as a barrier to upward movement.

The reverse is also true. If a resistance level is broken, it becomes a new support level.

How to Determine if a True Breakout Occurs?

Not every touch is a breakout. A genuine breakout must meet two conditions:

Condition 1: Closing Price Breakthrough. It’s not enough to just briefly touch the level during the day; the closing price must truly break through, with a move of at least 3%.

Condition 2: Volume Confirmation. The volume during the breakout must significantly increase, preferably exceeding 30% of the average volume over the past 5 days. Breakouts without volume are false signals and are easily reversed.

How to Use Support and Resistance in Practical Trading?

Once you understand support and resistance, the next step is how to use them to make money.

Long (Bullish) Trading Strategies

Long traders should focus on support lines:

• Entry Signal: Buy when the price falls back to the support level. The support level is your opportunity.
• Stop Loss: If the price breaks below the support level, exit to cut losses. A support breach indicates the bulls have lost control.

Short (Bearish) Trading Strategies

Short traders should focus on resistance lines:

• Entry Signal: Sell when the price rises back to the resistance level. The resistance level is a good point to short.
• Stop Loss: If the price breaks above the resistance level, close the position. A resistance breach indicates the bears have lost control.

How Does It Look in Actual Trading?

Let’s look at two classic cases using gold price movements.

Case 1: Downtrend from March to November 2022

Gold fell from a high of @E2@2066@E2@ dollars downward. During this process, levels at @E2@2066@E2@, @E2@1996@E2@, @E2@1895@E2@, @E2@1810@E2@, and @E2@1725@E2@ dollars served as resistance levels.

Each time the gold price rebounded and touched these resistance levels, it was met with selling pressure and fell again. This is a typical example of resistance levels working.

For traders who bought at higher levels, encountering selling at these resistance points is a signal to exit. Don’t hold onto the hope of a breakout—that’s unrealistic.

Case 2: Uptrend from November 2022 to June 2023

Gold dropped to @E2@1616@E2@ dollars and then started reversing. During the subsequent rally, levels at @E2@1616@E2@, @E2@1719@E2@, and @E2@1805@E2@ dollars became key support levels.

Each time the price retreated to these supports, buying interest entered, and the price rebounded. These support levels are ideal buy points for long positions.

As long as the support levels are not broken, you can buy on dips and continue to enjoy the upward trend.

Final Reminder

Support and resistance are indeed some of the most practical tools in technical analysis. But don’t rely blindly on any single indicator.

Market movements are often influenced by multiple factors. The wisest approach is to combine 2 to 3 technical indicators for mutual confirmation, making your trading decisions more solid. Support and resistance are just tools in your toolbox; mastering their flexible use is the hallmark of a skilled trader.