Price action

Support and resistance:where moves have stopped before.

Support is a price level where falling prices have repeatedly stopped or turned up; resistance is a level where rising prices have repeatedly stalled or turned down. Traders draw them from past swing highs and lows and treat them as zones rather than exact prices. A broken level often swaps roles, but none predicts the next move.

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What support and resistance are

The idea is memory. If buyers stepped in at a price several times before, traders expect them to be interested there again - and many traders place orders near the same visible levels, which can make the expectation partly self-fulfilling.

Levels are drawn from swing highs and lows, previous day or week highs and lows, and round numbers. The more times a level has been tested and the more obvious it is on higher timeframes, the more attention it gets - which also makes it a place where stops cluster, the liquidity that SMC traders watch.

Levels are zones, not lines

Price rarely turns at exactly the same tick. Drawing a zone - from the wick extremes to the bodies of the turning candles, for example - reflects that, and keeps a trader from treating a small overshoot as a failure or a near miss as a success.

Wider zones on higher timeframes, narrower ones on lower timeframes. Whatever the convention, set it before you test a strategy on it.

Role reversal: when support becomes resistance

When price breaks decisively through support, the old support is often watched as resistance on a return from below, and the reverse for broken resistance. The SMC breaker block and inverse fair value gap are more specific versions of the same idea.

Breaks fail as well as hold. A move through a level that quickly reverses back is a false break, and it is common around obvious levels.

Step by step

How to identify it

Draw levels from the higher timeframe down, and keep only the ones that matter.

On a daily or four-hour chart, mark the swing highs and lows where price clearly turned.
Group nearby turning points into zones instead of drawing a line at each.
Add the previous day's and week's high and low, and nearby round numbers.
On your trading timeframe, keep the few zones closest to current price and delete the rest.
Decide in advance what a break is - a close beyond the zone, not a wick - and what would invalidate a trade at it.

Worked example

The concept,walked through

A level that flips, described

An illustrative sequence in words, with round numbers standing in for price. It is not taken from any real instrument or date.

1. SupportPrice falls to 100 three times over two weeks and bounces each time. The trader marks a support zone from 99.6 to 100.2.
2. BreakA strong session closes at 98.5, well below the zone.
3. RetestPrice rallies back to 99.8, inside the old zone, and stalls. The trader now reads the zone as potential resistance.

Whether price turns lower from 99.8 is not part of the definition. The zone told the trader where to pay attention and where a trade idea would be wrong; it did not tell them the outcome.

Common mistakes

Where tradersgo wrong

Drawing too many levels

A chart covered in lines has a level near every price, which means none of them is informative.

Treating a line as exact

Stops placed a tick beyond an obvious line are where sweeps happen. Think in zones.

Trading every touch

A level is a location; traders usually want a separate reason to act there.

Limitations

What it cannottell you

No chart concept predicts price. These are the limits worth keeping in view.

Support and resistance are drawn in hindsight, and two traders will draw different levels on the same chart.
There is no reliable evidence that a level will hold a given number of times; any edge is specific to the trader's rules, market and period.

In an evaluation

Using it on asimulated account

Stops just beyond obvious levels are commonly swept before price turns, and a swept stop is a full loss. On a $100,000 simulated account the daily loss limit is $3,000 on Instant or $5,000 on 1 Step and 2 Step; size from the stop, risking something like $500, so that several failed tests in a day stay well inside it.

Trading rule

What is the daily loss limit?

The ceiling a string of failed tests is measured against - 3% on Instant and 5% on 1 Step and 2 Step.

Trading rule

Does slippage excuse a breach?

Fast breaks through a level are where stops slip.

Trading rule

What is maximum drawdown?

The overall floor beneath the account.

Questions

Asked aboutthis concept

Support is below the current price, where falls have stopped before; resistance is above it, where rallies have stalled before. A broken level often swaps roles.

Most traders treat them as zones, because price rarely turns at exactly the same tick. The width depends on the timeframe and the trader's convention.

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