- swing highs and lows
Perhaps the best support and resistance levels are traditional swing/wave highs and lows. These are the levels we find by zooming in over a longer time frame, usually a weekly chart or possibly even monthly. This is where we find a ‘bird’s eye’ of the market and the major turning points within it. What we want to do is just identify clear levels that the values are either inverted at high or low and draw horizontal lines on them. These levels do not have to be ‘accurate’, they can intersect price bars or they can be fields rather than exact levels. You can consider this as the first step in relation to support and resistance levels and the first thing you should do when analyzing any chart.
Notice the Ing Birds Eye View, we get by zooming out for the weekly time frame. Here we can identify key support and resistance levels, trends, and trade ranges.
Next, we want to set a deadline for the daily chart, to raise our level some more. The daily chart is the primary time frame for finding a trade setup, so it is important that we understand the broader picture on the weekly chart but also that we have identified short-term levels on the daily. I have a good video on this topic of mapping the market from a high time frame to a lower level, do check it out. An important point to remember is that when you zoom in daily or even 4 hours or 1 hour, you always leave high time frame levels on your chart because they are so important.
Note, by zooming into the daily chart from the weekly example above, some similar weekly levels are still in play and some new short-term daily chart levels that we can’t actually see on the weekly …
Swing point level rise in trends
Have you heard that when the market crosses support then old support becomes the new resistance and when the market crosses resistance then old resistance becomes the new support”? It refers to the occurrence of a market-making higher or higher lows or lower lows and lower lows and lower lows in an up or downtrend. We should mark these piping stepping levels when creating a form, then when the market breaks or goes through them we can trade back to those levels, also known as trading deficiencies. It also gives us a way to map a market trend – when you see this move you know that you have a solid trend.
These levels are good entry points as well as points to define risk or prevent loss points. You can keep your stop loss on the other side of these levels.
For example, in the chart image below, we see a clear downtrend in place. When the price fell below the previous support level, this level ‘flipped’ to the resistance level which acted as high-probability entry levels if the price went back above them.
Swing Levels as Prevention and Risk Management
We can look for swing points to sell or buy, even if they are not part of a trend. Markets spend most of their time in consolidated and trading ranges, so we need to be able to find trades within those market conditions, not just trends.
We can simply use the most recent swing high or low as a risk point to define your next trade, which you can see in the chart example below.
In the image below, note that the value decreased through the support, fell down, then it remained contained under the level, which was then acting as a resistance. We can look to sell at or below that level if the price lies below it. In this way, the level is being defined where we will look to take our next trade and we know if the value moves beyond that level then our trade idea is invalid, so meeting our stop loss beyond that level is clear. We can also use recent swing points as a target of profit. In the example below, note how we can use recent swing lows as a target for profit.
Support and Resistance level
Next, let’s talk about dynamic support and resistance levels. By dynamic I mean moving level, in other words, moving average. According to what price a moving average moves up or down, and you can set it to consider a certain number of times or time periods.
My personal favorites are the 21 and 50 period EMAs or exponential moving averages. I like to use them mostly on daily chart timeframes, but they can also be useful on weekly charts. These EMAs are good for quickly identifying the market trend and joining that trend. We can see the value for testing the moving average after breaking up or down, and then enter it at or near that moving average. Ideally, the market would have proved itself by testing the level and bouncing first, then you could enter that second return.
Here is an example of a 50-period EMA that is used to identify a downtrend as well as to find an entry point within it. Ideally, we would see the 1 hour, 4 hour or daily chart price action sell signal as a pass price or hit a level at some point that would return to a downtrend in this way…
The 21 period EMA can be used in a similar way as we see below. Keep in mind, the shorter the EMA period, the more frequent the interaction with the EMA. Therefore, in a less volatile market, you may want to use a shorter duration EMA like 21 instead of longer ones like 50.
50% Fibonacci Retracement level
Whenever I do not use traditional Fibonacci retracements and all their extension levels, there is a proven phenomenon that over time, markets often keep the swing half-point (about 50 to 55% of the area), where the market makes huge moves. , Bounces again in the original direction. This is partly a self-fulfilling phenomenon and partly a result of general market dynamics. To learn more, I would like to see this lesson on how to do 50% retracement.
Look at this example chart, which has a big move that retreats to a level of around 50% on two separate occasions, providing a very high-probability entry scenario, especially on the second bounce …
Range Supports and Resistance price level
Trading range support and resistance Price levels can provide many high-probability Best entry opportunities for the price action trader. The main idea is to first identify a trading price range, which is basically a price bouncing between two parallel price levels in the market, and then look for price action signals at those levels or look for the level to fade on a blind entry. By fading the level, I mean if the market is moving forward and trade the opposite way, ie sell, at the major resistance of the range. Or, you want to buy range support. You can literally do this as long as the price is clearly broken and locked out of range. This is a much better approach than most traders take in the trading range – trying to predict a breakout and fall back into the whipsawed price range before that happens.
Note that in the example image below, we had a large trading range because the price was clearly oscillating between resistance and support. We could have entered either the second test of resistance (short) or on the second test of support (long) either blindly or on the price action signal like the pin bar signal, we see below on the support.
Event area of support and resistance
The last type of support or resistance we are going to discuss today is the event area. The event area is a proprietary form of support and resistance that I detail in my Price Action Trading course, but, for now, make sure you have a good basic understanding of them.
Incident areas are the major levels in the market where a large price action event occurred. This may be a major reversal or a clear price action signal, leading to strong directional action.
In the example chart below, you can see a clear event level that was created after a strong bearish reversal bar on the weekly chart (there was also a large daily chart bearish pin bar). As Price approached a rebound at that level a few months later, we wanted to ensure that level on our chart as it was a strong level to sell at a blind entry or 1 hour, 4 hours. Or sell daily chart signals.