Support forms where demand has been strong enough to stop declines, often at previous lows, round numbers or former resistance. Resistance forms where supply has capped rallies. Levels work partly because many traders watch them and place orders around them. Once broken, a level often switches roles: old resistance can become new support.
Example
BTC is rejected three times near $68,000 over two months. In the next rally it breaks through, closes the week at $70,500, then pulls back to $68,200 and bounces. A trader buys the retest at $68,300 with a stop below $67,000, treating the old resistance as new support.
Why it matters
Support and resistance give logical places for stops and targets, which makes the risk-reward measurable before entry. Trades planned around clear levels are also much easier to review in a journal than trades taken in the middle of nowhere.
Common mistake
Drawing so many lines that every price is near a level. Focus on a few levels with clear reactions on the timeframe you trade, and treat them as zones rather than exact prices, because wicks often overshoot.
FAQ
- How do I find support and resistance?
- Look for prices with several clear reversals, high-volume areas and previous highs and lows, on your trading timeframe and the one above it.
- Why do support levels break?
- When sellers keep absorbing the buying at a level, it eventually gives way. Repeated tests often weaken a level rather than strengthen it.
- Should I place my stop exactly at support?
- Placing it just past the zone, with a buffer, lowers the chance of being stopped out by a wick that briefly pierces the level.