Support and Resistance

Why Price Has Memory

Support and resistance levels exist because markets are made of humans with memory. If a price level stopped a fall three times, thousands of traders have that number in their heads. The fourth time price approaches, many of them will buy there again. That collective memory creates self-fulfilling levels.

How to Identify Support

Support is a price floor. Look for areas where price bounced up at least twice from a similar level. The more bounces, the stronger the support.

How to Identify Resistance

Resistance is a price ceiling. Look for areas where price was rejected downward at least twice from a similar level.

Role Reversal: The Most Important Concept

When price breaks through a support level, that level often becomes resistance. Why? The traders who bought at support are now underwater. When price comes back up to that level, many of them sell to "get out even", creating selling pressure at the old support, which is now resistance.

Zones, Not Lines

S/R levels are not precise to the pip. Think of them as zones (a range of 10-20 pips) rather than exact lines. Price often "wicks" through a level briefly before respecting it. Using a zone prevents you from dismissing a valid level just because price temporarily poked through.

How Many Tests Make a Level Strong?

Classical technical analysis says the more times a level is tested without breaking, the more significant it becomes: every successful defense adds to the collective memory around that price. But many traders argue the opposite, especially when several tests happen in quick succession: each test consumes some of the limit orders defending the level, so repeated rapid tests can deplete the defense until the level finally gives way. Both views have merit. Respect a level with a long history of clean bounces, but treat a level being hammered again and again over a short period as one that may be about to break, not one that is guaranteed to hold.