Support & ResistanceSupport and resistance levels are critical in financial markets.
They are very similar to pivot points, except simpler.
When the price of a pair goes up to $10,000 and goes down to $9000 USD, that $10,000 USD zone is now resistance. If it bounces from $9000 and up to $11,000, the $9000 level is now support and the $10,000 resistance is now broken and could potentially turn support, where it can bounce.
Generally, for resistance or support to break, a candle has to close above or below support and resistance. A wick above either is only the price “testing” resistance.
I generally wait for a close above / below as well as further movement in the same direction, and a possible volume break-out short term.
This is because a close above / below itself can be a fake-out, or a fake breakout, and continue doing what it originally was.The blue box is an example of a fake-out.
The more often support and resistance is tested, the stronger it is.
The stronger support or resistance zones are, the stronger they will break out.
For example, if a support is tested 5 times and breaks to the downside, it will move down further than for example, if it was tested 2 or 3 times.
Next post we will get into support or resistance zones and also examples on how to trade them.
