Identifying support and resistance points is a fundamental skill in technical analysis, used to determine areas where the price may reverse or face difficulty continuing in the same direction. Here’s how to identify them:
First: What are support and resistance points?
Support: is a price level expected to halt the price's fall or bounce back up from.
Resistance: is a price level expected to halt the price's rise or bounce back down from.
Second: Methods for identifying support and resistance points
1. Previous highs and lows
Support: identified at previous lows (the lowest price reached).
Resistance: identified at previous highs (the highest price reached).
2. Trendlines
Draw a line connecting the ascending lows to identify support.
Draw a line connecting the descending highs to identify resistance.
3. Moving Averages
Averages like MA50 or MA200 may form dynamic support or resistance areas.
4. Fibonacci Retracement Levels
Used to identify potential reversal levels during corrections.
Famous levels: 23.6%, 38.2%, 50%, 61.8%.
5. Pivot Points
Widely used in day trading to identify automatic support and resistance levels.
Third: Practical tips
Support and resistance are not precise lines but areas.
Confirmation of the point occurs if the price bounces from it multiple times.
Combine other technical analysis tools such as trading volume and candlestick patterns to enhance your decisions.