Support and resistance are proven areas where buyers and sellers find
some of equilibrium, they are major turning points in the market.
Support and resistance levels are formed when price reverses and
change direction, and price will often respect these support and
resistance levels, in other words, they tend to contain price movement
until of course price breaks through them.
In trending markets, support and resistance are formed from swing
points. in an uptrend the previous swing point acts as a support level,
and in a downtrend the old swing point acts as a resistance level.See the example below to learn more
support level after the breakout.
When the market makes the retracement move it respects the
previous swing point (support level) which will represent the beginning
of another impulsive move.
As you can see, when the market tests the previous swing point
(support level) it goes up again.
By drawing a support level in an uptrend market, we can predict when
the next impulsive move will take place.
Let’s see another example of a downtrend market.The market makes an impulsive move. If you understand how price
action act in a trending market, you will predict with high accuracy
when the next impulsive move will begin.
Another way to catch the beginning of an impulsive move is by drawing
trend lines.
This is another technical skill that you have to learn if you want to
identify key linear support and resistance level.
Let me explain you first what do trend lines mean?
Quite often when the market is on the move making new swing highs
and lows, price will tend to respect a linear level which is identified as
a trend line.
Bullish markets will tend to create a linear support level, and bearish
markets will form a linear resistance level.
