How I Trade Support and Resistance

Support and resistance is a fundamental concept in trading. I would suspect most of the readers of this blog have at least a basic understanding of how support and resistance works in markets.

Here is a good definition of support and resistance. What I wanted to talk about is how I use it in my trading activities.

I trade with three fundamental attributes of support and resistance:

1. For me, support and resistance are zones, not finite numbers. The greater the timeframe, the more this attribute applies. I am looking at daily charts and longer, I draw the support and resistance zone as 1/4 ATR beyond the level of support. I expect that price will begin to change direction in this area. Combined with moving averages and certain patterns, like the hammer, this has worked well.

2. Support/resistance is validated by the number of times the zone is touched. Corey at afraid to trade used this “number of times touched method” as one measure to assess the validity of trend lines. I share his conclusions. When I observe price bounce off a zone of support and resistance multiple times, I know that zone is strong. It’s my interpretation that the higher the time frame (days, weeks, months…), the more powerful the zone has become.

3. Don’t forget pivots when trading intraday. Perhaps using pivots deserve their own article. Pivots are areas of support and resistance calculated from the previous day’s high, low, open, and close. The true value in the pivot numbers is that they are widely followed. The whole concept of support and resistance is that support and resistance holds because so many traders buy or sell when price hits a certain number. This is exactly why pivots are useful from an intraday perspective. Pivot points are generally calculated the same way. So when you look at a widely traded contract like the emini S&P, price will bounce, consolidate, and break around pivot points. Here is an excellent pivot point calculator.

Hope this got you thinking about how you use support and resistance in your own trading. It’s an easy concept to understand, so it’s easy to brush off as not as important.

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