Breakout Support Line
Exercise: Find the correctly drawn support levels. Show exercise
Support and resistance in a range
The price confronts the same support and resistance levels several times before breaking out of the range in a ranging market.
Number 1: Price finds resistance in a range
Number 2: Price finds support in a range
Number 3: Price finally breaks out of the range through support
The illustration above shows, the resistance level provides a clear upper boundary and the support level provides a clear lower boundary to the range.
Breakout: This occurs soon after the sellers overpower the buyers and break through the settled support level.
Placing S&R levels with wicks and bodies:
The two illustration charts depict the placement of support or resistance lines using the wicks and the bodies of the candle.
The chart below is an illustration of using the wicks of the candles to place a resistance line.
2.Support can become resistance
Exercise 1: Find the resistance level turned into support Show exercise
Exercise 2: Find the resistance level turned into support Show exercise
Exercise 3: Find the resistance level turned into support Show exercise
Support can become resistance
Sellers will enter the market and the price will continue down when the price breaks through a support level, when the price comes back up to this level.
The illustration below depicts support becoming resistance and resistance becoming support.
The same price level in this illustration acts as support and resistance multiple times.
Number 1: Price finds support
Number 2: Price breaks through support
Number 3: Price then returns to the previous support level which has now become resistance.
Number 4: Price breaks through resistance and then finds support once again.
An overview of the lesson discussed so far….
At the support level, there are adequate buyers to stop the price from falling further and reverse the price to the upside.
At the resistance level, there are adequate sellers to stop the price from rising further and reverse the price to the downside.
Place horizontal lines on a chart where the price seems to stop repeatedly to find the support and resistance levels.
When our approach is stable, we can use the wicks or the bodies of the candlesticks to draw support and resistance.
Support can become resistance and resistance can become support.
We need to be careful to avoid false breakouts.
The price may pretend to break through support or resistance, but will reverse again in the opposite direction.