Support Resistance & Trendlines
Master key price levels to find optimal entry and exit points
Support Resistance Fundamental Concepts
Support and Resistance are the most important and fundamental concepts in technical analysis. Support is price area where decline stops or bounces due to buying support; resistance is price area where rise stops or pulls back due to selling resistance. Simply: support is "floor" (price hard to break below), resistance is "ceiling" (price hard to break above).
Psychology Behind S/R
Support and resistance work due to collective memory and psychological expectations of market participants:
- 1. Market Memory: Traders remember price bounced or fell at certain level (like 1.1000), when price approaches again, expect same scenario, take same actions (buy at support, sell at resistance), creating self-fulfilling prophecy.
- 2. Trapped Traders: Traders who bought at resistance are trapped (e.g., bought EUR/USD at 1.2000 then price fell), when price bounces back to 1.2000, trapped traders rush to exit (sell), creating resistance. Similarly, shorts trapped at support will close (buy) when price returns, creating support.
- 3. Stop-Loss Clusters: Many traders place stop-loss orders beyond key S/R (below support, above resistance). When price triggers these stops, causes chain reaction: breaking resistance triggers short stops (buying), accelerates rise; breaking support triggers long stops (selling), accelerates decline.
- 4. Institutional Orders: Large institutions (banks, hedge funds) place large orders at key price levels. E.g., banks set buy orders at 1.1000 round number (support), sell orders at 1.2000 (resistance), these large orders reinforce S/R effect.
Support Characteristics
- Price stops declining or bounces after reaching this level
- Buying force stronger than selling (demand > supply)
- Common locations: previous lows, below round numbers, moving averages
- More times touched, stronger the support
- After breaking, becomes resistance (role reversal)
- Trading strategy: buy (long) near support
Resistance Characteristics
- Price stops rising or pulls back after reaching this level
- Selling force stronger than buying (supply > demand)
- Common locations: previous highs, above round numbers, moving averages
- More times touched, stronger the resistance
- After breaking, becomes support (role reversal)
- Trading strategy: sell (short) near resistance
S/R Strength Levels
- Weak S/R: Only touched 1-2 times, recently formed (1-2 days), only significant on small timeframes (M15/H1), easily broken.
- Medium S/R: Touched 3-4 times, formed week ago, significant on H4 chart, needs stronger force to break.
- Strong S/R: Touched 5+ times, historical (weeks or months), significant on D1/W1 chart, round number (1.1000), extremely hard to break. Strong momentum after break.
S/R are "Zones" not "Lines"
Beginner mistake is drawing S/R as precise "lines" (like 1.1000), expecting price to exactly touch that point. Actually, due to market noise, spread, slippage, and different trader views, price rarely touches exact point. Correct approach is drawing S/R as "zones" (like 1.0980-1.1000, thickness 15-30 pips). As long as price enters zone and shows reversal signal (like Pin Bar, engulfing), can enter, no need to wait for exact touch. This captures opportunities while filtering noise.
Identification Methods & Tips
Method 1: Horizontal Support Resistance
Identification Principle: Horizontal S/R is most common and reliable type, based on historical price highs and lows. Market has "memory", past highs/lows often become key levels again.
Identification Steps:
- Step 1: Switch to D1 Chart - Start from larger timeframe, identify most important S/R. D1 chart has less noise, shows most reliable highs/lows.
- Step 2: Mark Significant Highs - Find "peaks" surrounded by at least 3-5 candles (candles on both sides lower). Draw horizontal line at that high, extend right, as resistance.
- Step 3: Mark Significant Lows - Find "valleys" surrounded by at least 3-5 candles (candles on both sides higher). Draw horizontal line at that low, extend right, as support.
- Step 4: Filter Minor Levels - Remove levels touched less than 2 times, keep key levels tested multiple times (3+). Keep 5-8 main S/R lines on chart, not too many.
- Step 5: Convert to Zones - Convert lines to 15-30 pip zones. E.g., previous high 1.1050, draw zone 1.1030-1.1050.
Special Types of Horizontal S/R:
- 1. Round Numbers: 1.1000, 1.2000, 150.00 etc. round numbers naturally attract attention, institutional orders cluster, form strong S/R.
- 2. Historical Extremes: Yearly/monthly highs/lows have extreme psychological significance, are super-strong S/R.
- 3. Previous Day Open/Close: Daily open/close often become intraday S/R, especially in forex (24hr trading, open is 0:00 GMT).
Method 2: Multiple Touch Zones
Principle: If price bounces or falls at same zone multiple times (3+), indicates that zone is key S/R. More touches, higher reliability, but also means stronger momentum after break ("spring" effect).
Identification Tips:
- On H4/D1 chart look back at least 50-100 candles (2-3 months history)
- Find zones where price "bounced" multiple times (at least 3 touches)
- Touches show long shadows or reversal candles (Pin Bar, Hammer)
- Touches spaced at least days or weeks apart (not consecutive touches)
- First touch most important, subsequent touches decrease in reliability
⚠️ Beware "False Touches":
Not all touches are valid. Valid touch characteristics: 1) Candle shadow clearly touches zone; 2) Price bounces significantly after touch (at least 20-30 pips); 3) Touch accompanied by reversal pattern. Invalid touch: shadow barely penetrates zone (1-2 pips), price doesn't bounce, or only touched on M5 small timeframe.
Method 3: Role Reversal
Principle: Support becomes resistance after breaking, resistance becomes support after breaking. This is one of most reliable trading opportunities (70-75% win rate), as this level is "validated" by market twice (once as original S/R, once as new role after break).
Resistance→Support (Upward Break)
- Price breaks above resistance (e.g., 1.1000)
- After break, price rises 20-50 pips
- Price retests original resistance (now support)
- Bullish signal appears near original resistance (Pin Bar)
- Long entry, stop below original resistance
Support→Resistance (Downward Break)
- Price breaks below support (e.g., 1.0900)
- After break, price falls 20-50 pips
- Price bounces to original support (now resistance)
- Bearish signal appears near original support (Shooting Star)
- Short entry, stop above original support
⚡ Trading Points: Key to role reversal trading is "wait for retest". Don't chase immediately on break (easily encounter false breakout), wait for price to retest original S/R and show reversal signal before entry. This confirms breakout validity and allows better entry price, improving risk-reward ratio.
Correct Trendline Drawing
Trendlines are diagonal lines connecting price highs or lows, used to identify trend direction and dynamic support/resistance. Trendlines are extension of horizontal S/R, difference is trendlines are "dynamic" (diagonal), moving with time. Correct trendline drawing is one of core technical analysis skills.
Uptrend Line Drawing
Definition: Connect two or more rising lows (Higher Lows), draw straight line sloping upward right. Uptrend line is dynamic support, price usually bounces after touch.
Drawing Steps:
- Step 1: Identify Uptrend - Confirm price making Higher Highs and Higher Lows (each high higher than previous, each low higher than previous).
- Step 2: Find Starting Point - Find trend's "starting low" (first significant low), as trendline starting point.
- Step 3: Connect Second Low - Find next higher low (Higher Low), connect these two lows, draw preliminary trendline.
- Step 4: Validate Third Touch - Trendline needs at least 3 touches to be valid. Wait for third low to touch or approach trendline, confirm trendline validity.
- Step 5: Adjust Angle - If third low doesn't touch trendline, fine-tune trendline angle to connect most lows (allow 1-2 candles slight penetration).
Uptrend Line Trading Strategy:
Buy (long) when price pulls back near uptrend line: 1) Wait for price to touch trendline (allow 1-2 candles penetration); 2) Bullish reversal signal appears (Hammer, Pin Bar); 3) Enter long, stop 20-30 pips below trendline; 4) Target previous high or use trailing stop. When uptrend line breaks (close clearly below), trend reverses, exit position.
Downtrend Line Drawing
Definition: Connect two or more declining highs (Lower Highs), draw straight line sloping downward right. Downtrend line is dynamic resistance, price usually falls after touch.
Drawing Steps:
- Step 1: Identify Downtrend - Confirm price making Lower Lows and Lower Highs (each high lower than previous, each low lower than previous).
- Step 2: Find Starting Point - Find trend's "starting high" (first significant high), as trendline starting point.
- Step 3: Connect Second High - Find next lower high (Lower High), connect these two highs, draw preliminary trendline.
- Step 4: Validate Third Touch - Wait for third high to touch or approach trendline, confirm trendline validity.
- Step 5: Adjust Angle - Fine-tune trendline angle to connect most highs (allow 1-2 candles slight penetration).
Downtrend Line Trading Strategy:
Sell (short) when price bounces near downtrend line: 1) Wait for price to touch trendline (allow 1-2 candles penetration); 2) Bearish reversal signal appears (Shooting Star, Bearish Engulfing); 3) Enter short, stop 20-30 pips above trendline; 4) Target previous low or use trailing stop. When downtrend line breaks (close clearly above), trend reverses, exit position.
8 Golden Rules for Trendline Drawing
- 1. Priority Connect Bodies: Trendlines should connect candle bodies (close prices) not wicks, bodies represent market consensus, more reliable.
- 2. Minimum 3 Touches: Two touches only draw "candidate" trendline, 3+ touches confirm as valid trendline.
- 3. Allow Minor Penetration: 1-2 candles slightly penetrating trendline (5-10 pips) is normal, don't pursue perfect fit excessively.
- 4. Moderate Angle: Trendline angle best between 30-60 degrees. Too steep (>60°) unsustainable, too flat (<30°) weak trend.
- 5. Don't Force: If can't find clear connection points, trend unclear or ranging, don't force trendline drawing.
- 6. Regular Updates: As new candles form, trendlines may need adjustment. Update trendlines during weekly review.
- 7. Larger Timeframe Priority: D1/W1 chart trendlines most reliable, H4 next, H1/M15 not recommended (too noisy).
- 8. Breakout Confirmation: Trendline break needs close clearly breaks (at least 10-15 pips), single wick penetration doesn't count as break.
Dynamic Support Resistance (Moving Averages)
Dynamic Support Resistance refers to S/R levels that move with price changes, most commonly Moving Averages (MA). Compared to horizontal S/R and trendlines, dynamic S/R advantage is "auto-adjustment", no manual line drawing needed, real-time reflects market state.
Moving Averages as Dynamic S/R
Principle: Moving Average represents average price over period, in trending markets, price tends to fluctuate around MA: in uptrend price runs above MA, gets support when pulling back to MA; in downtrend price runs below MA, meets resistance when bouncing to MA.
| Moving Average | Period | Function | Best Timeframe | Reliability |
|---|---|---|---|---|
| 20 EMA | 20 periods | Short-term trend, intraday S/R | M15/H1/H4 | ⭐⭐⭐ High |
| 50 EMA | 50 periods | Medium-term trend, swing trading S/R | H1/H4/D1 | ⭐⭐⭐⭐ Very High |
| 200 EMA | 200 periods | Long-term trend, major trend judgment | H4/D1/W1 | ⭐⭐⭐⭐⭐ Highest |
MA Dynamic Support in Uptrend
- Price running above 20/50 EMA (confirms uptrend)
- Price gets support and bounces when pulling back to 20 EMA
- If breaks 20 EMA, pulls back to 50 EMA gets support
- Trading: price touches 20/50 EMA + bullish signal → long
- Stop: 20-30 pips below EMA
- Target: previous high or trailing stop
MA Dynamic Resistance in Downtrend
- Price running below 20/50 EMA (confirms downtrend)
- Price meets resistance and falls when bouncing to 20 EMA
- If breaks 20 EMA, bounces to 50 EMA meets resistance
- Trading: price touches 20/50 EMA + bearish signal → short
- Stop: 20-30 pips above EMA
- Target: previous low or trailing stop
5 Practical Tips for Dynamic S/R Trading
- 1. Multiple MA Confirmation: Use both 20 EMA and 50 EMA. When price pulls back to 20 EMA but doesn't bounce, wait for pullback to 50 EMA (stronger support). When 20/50 EMA both provide support, highest win rate (75%+).
- 2. Combine with Horizontal S/R: Best entry point is where MA overlaps with horizontal S/R. E.g., price pulls back to 20 EMA, and 20 EMA happens to be near previous low support 1.0900, this is "double support", extremely high win rate.
- 3. Wait for Reversal Signal: Don't blindly enter when price touches MA, wait for candlestick reversal signal (Pin Bar, Hammer) to confirm S/R validity. No signal, no trade.
- 4. Most Effective Mid-Trend: MA dynamic S/R most effective in early/mid trend (trend running 50-200 pips). Late trend (already run 300+ pips) or ranging market, MA less effective, price frequently crosses MA.
- 5. MA Break Changes Trend: When price close clearly breaks 50 EMA (breaks below in uptrend, above in downtrend), trend may reverse. Close existing positions, wait for new trend confirmation before trading opposite direction.
Breakout Trading Strategies
Breakout Trading means entering after price breaks key S/R levels, capturing strong move after breakout. Breakouts are among most profitable trading opportunities in technical analysis (successful breakout usually runs 50-150 pips), but also easiest strategy to encounter false signals (false breakout rate 30-40%). Key is identifying "true breakout" vs "false breakout".
Upward Breakout Trading (Resistance Breakout)
Definition: Price breaks above key resistance (previous high, round number, trendline), indicates rising momentum strengthens, new uptrend may begin.
Upward Breakout Entry Strategies (3 Types):
- Strategy 1: Enter After Breakout Candle Closes (Recommended)
Wait for breakout candle close clearly above resistance (at least 10-15 pips), enter at next candle open. Advantage: confirms breakout validity, avoids false breakout; Disadvantage: sacrifices some profit (higher entry). 70% win rate. - Strategy 2: Enter After Retest (Safest)
After breakout don't enter immediately, wait for price to retest original resistance (now support), enter when bullish signal (Pin Bar) appears on retest. Advantage: double confirmation (breakout + retest), highest win rate 75%+; Disadvantage: not all breakouts retest, may miss opportunities (30% no retest). - Strategy 3: Aggressive Chase (High Risk)
Enter during breakout candle formation or breakout moment. Advantage: best entry price, maximum profit potential; Disadvantage: easily encounter false breakout (price falls back before candle closes), low 55% win rate. Not recommended for beginners.
Complete Upward Breakout Trade Example:
- Identify: EUR/USD H4 previous high resistance 1.1000 (3 touches)
- Breakout: H4 large bullish closes 1.1018, breaks resistance 18 pips
- Entry: next H4 open 1.1020 (strategy 1)
- Or: wait for retest 1.1000-1.0995, after Pin Bar enter 1.1005 (strategy 2)
- Stop: 1.0985 below breakout (35 pip risk)
- Target: previous high resistance 1.1100 or 1:2 risk-reward (1.1090)
Downward Breakout Trading (Support Breakout)
Definition: Price breaks below key support (previous low, round number, trendline), indicates falling momentum strengthens, new downtrend may begin.
Complete Downward Breakout Trade Example:
- Identify: GBP/USD H4 previous low support 1.2650 (2 touches)
- Breakout: H4 large bearish closes 1.2632, breaks support 18 pips
- Entry: next H4 open 1.2630 (strategy 1)
- Or: wait for bounce to 1.2650-1.2655, after Shooting Star enter 1.2645 (strategy 2)
- Stop: 1.2665 above breakout (35 pip risk)
- Target: previous low support 1.2550 or 1:2 risk-reward (1.2560)
6 Key Conditions to Improve Breakout Win Rate
- 1. Consolidation Before Break: Best breakouts occur after price consolidates for long time (at least 6-12 hours H1 or 2-3 days D1). Consolidation accumulates energy, breakout more powerful. Avoid breaking newly formed S/R (only 2-3 hours ago).
- 2. Breakout Candle Strength: Valid breakout needs large body candle (at least 30-50 pips), almost no opposite direction shadow (upward break no lower shadow, downward break no upper shadow), close far from breakout point. Small body candle breakout easily fails.
- 3. Volume Confirmation: True breakout accompanied by significantly increased volume (if Tick Volume data available). No-volume breakout easily fails. Forex spot has no true volume, can reference futures volume.
- 4. Multiple Timeframe Alignment: When H1 breaks, H4 should also show similar signal (like H4 candle also near break). Single timeframe breakout less reliable.
- 5. Align with Larger Trend: Upward breakout in D1 uptrend 75%+ win rate, in D1 downtrend only 50%. With-trend breakout reliable, counter-trend breakout caution.
- 6. Avoid News Periods: Breakouts around news 80% are false (price violently fluctuates then reverts). Use economic calendar, avoid trading breakouts 1 hour around news.
False Breakout Identification & Response
What is False Breakout?
False breakout is when price briefly breaks key S/R level, then quickly falls back within S/R, failing to continue breakout direction. False breakouts are breakout traders' biggest enemy, causing 30-40% breakout trades to fail. Causes: institutional "stop hunting" (deliberately create false breakout to trap retail, then reverse), insufficient liquidity, news impact, technical retest.
False Breakout Characteristics:
- Small body candle breaks, with long upper/lower shadow
- Close fails to hold above break (only breaks 5-10 pips)
- No volume confirmation (Tick Volume no increase)
- Reverses immediately after break (within 1-2 candles)
- Only breaks on small timeframe, not confirmed on large
- Occurs around news or low liquidity periods
True Breakout Characteristics:
- Large body candle breaks (30+ pips), no long opposite shadow
- Close clearly holds above break (at least 15-20 pips)
- Volume significantly increases
- Continues after break (at least 5-10 candles)
- Multiple timeframes simultaneously confirm break
- Clear consolidation or multiple tests before break
4 Strategies to Handle False Breakouts
Strategy 1: Wait for Close Confirmation (Most Important)
Never enter during breakout candle formation, must wait for candle close and confirm close clearly breaks (at least 10-15 pips). This filters 80% false breakouts. Though entry price slightly higher, safety significantly improves.
Strategy 2: Wait for Retest Entry (Safest)
After breakout don't enter immediately, wait for price to retest original S/R. If price bounces near original S/R on retest (Pin Bar signal appears), confirms role reversal successful, entering now 75%+ win rate. Disadvantage: 30% breakouts don't retest, miss opportunities.
Strategy 3: Use Larger Timeframe Confirmation
If H1 chart breaks, check if H4 also near break or already confirmed. Only trade multi-timeframe aligned breakouts (H1+H4 both break), avoid single small timeframe false breakouts.
Strategy 4: Strict Stop-Loss + Quick Admit Mistake
Even with confirmation, may still encounter false breakout. Set stop-loss (10-20 pips on other side of break), if price falls back within break point, immediately stop out, don't "give one more chance". After false breakout stops, consider reverse trading (false breakout up, reverse short).
False Breakout Reverse Trading (Fade the Fake)
False breakout is not only risk, but opportunity. After false breakout price usually moves opposite direction (false upward break then falls, false downward break then rises). This is because false breakout triggers many stop-loss orders and trapped traders, opposite force strong.
False Breakout Reverse Trading Steps:
- Step 1: Identify False Breakout - Price breaks resistance 1.1000, but close falls to 1.0998 (false breakout characteristic).
- Step 2: Wait for Confirmation - Next candle clearly closes within S/R (1.0990), confirms false breakout.
- Step 3: Enter Opposite Direction - Enter short (false upward break, reverse short), entry 1.0990.
- Step 4: Stop-Loss - Above false breakout high (1.1020), risk 30 pips.
- Step 5: Take-Profit - Support zone bottom or 1:2 risk-reward (1.0930), target 60 pips.
⚠️ Note: False breakout reverse trading is advanced strategy, requires quick reaction and strict discipline. Beginners recommended to master basic breakout trading first, try false breakout reverse after gaining experience.
Frequently Asked Questions
Q1: How to judge the strength of support/resistance levels?▼
Strong S/R characteristics: 1) Touched many times (3+ times); 2) Historical significance (formed weeks or months ago); 3) Significant on larger timeframe (like D1 previous high); 4) Round numbers (like 1.1000, 1.2000); 5) Obvious price rejection (long upper/lower shadows). Weak S/R: Only touched 1-2 times, recently formed, only significant on small timeframe. Strong S/R more reliable, breakout has greater momentum.
Q2: Should S/R be drawn as lines or zones?▼
Should be drawn as zones not exact lines. Reasons: 1) Price rarely touches exact point perfectly; 2) Different traders see slightly different levels; 3) Spread and slippage cause actual touch to deviate. Recommendation: Draw S/R as 15-30 pip zones. E.g., previous high 1.1050, support zone set as 1.1030-1.1050. When reversal signal appears within zone, enter - no need to wait for exact touch.
Q3: How to distinguish breakout from false breakout?▼
True breakout characteristics: 1) Large bullish/bearish candle breaks, close clearly above resistance; 2) Volume increases (if data available); 3) After breakout doesn't retest or small retest then continues; 4) Multiple timeframes break simultaneously (M15 and H1 both break). False breakout characteristics: 1) Candle with long upper shadow, close fails to hold; 2) No volume confirmation; 3) After breakout quickly falls back within S/R; 4) Only breaks on small timeframe. Avoid false breakouts: Wait for breakout candle close confirmation, or wait for retest before entry.
Q4: Should trendlines connect bodies or wicks?▼
Priority connect candle bodies (close prices), then wicks. Reasons: Bodies represent final consensus between buyers/sellers (close price), more meaningful; wicks represent extreme prices, possibly noise. In practice: Uptrend line connects low point body bottoms, if can't connect bodies then consider wicks; downtrend line connects high point body tops. Allow small deviations (1-2 candles slightly penetrate trendline), don't pursue perfection excessively. Remember: Trendlines are tools not iron laws.
Q5: Does support become resistance after breaking?▼
Yes, this is "Role Reversal" principle. Reasons: 1) Traders who bought at support (now trapped), when price bounces back to that level will exit (sell), forming resistance; 2) Traders who shorted below support, when price bounces to that level will take profit (buy to close), also forming resistance; 3) Market memory (that level was key). Application: After support breaks, wait for price to bounce back to that level (now resistance) then short, high win rate. Similarly, after resistance breaks becomes support, long on retest.
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